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Anand Finance Pvt. Ltd. Vs. Bank of Baroda, - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCompany Appeal No. 19 of 1979
Judge
Reported in17(1980)DLT334
ActsCompanies Act, 1956 - Sections 391; Code of Civil Procedure (CPC), 1908 - Order 34, Rule 5; Companies Court Rules, 1959 - Rule 9
AppellantAnand Finance Pvt. Ltd.
RespondentBank of Baroda, ;amarjit Singh Johar and Co.
Advocates: K.K. Mehra,; L.M. Sanghvi,; R.K. Luthra,;
Cases ReferredHukumchand v. Bansi Lal and
Excerpt:
.....of the companies act, 1956 - - the said application was opposed by the bank as well as by the auction purchaser. the court is enjoined to pass such orders as would protect the assets of the company as effectively as possible. bansi lal and others [1967]3scr695 ,while referring to order 34, has inter alias held as follows :order xxxiv rule 5(1) gives an opportunity to the judgment- debtor in a mortagage decree for sale to deposit the amount due under the mortagge decree at any time before the confirmation of sale made in pursuance of the final decree and if such a deposit is made the court executing the decree has to accept the payment and make an order in favor of the judgment-debtor in terms of order xxxiv, rule 5(1).'(18) the said decision clearly brings out that the underlying..........nagar, new delhi in favor of m/s amarjit singh johar & company (hereinafter referred to as 'the auction purchaser').(2) the relevant facts for the purpose of this appeal are that the company besides being indebted to a large number of other creditors also owed a sum of approximately rupees ten lakhs to the bank of baroda (hereinafter referred to as 'the bank'). the said debt was secured in january 1966 by an equitable mortgage being created of property no. 88 sunder nagar, new delhi. the said property was at one time claimed to be the personal property of its then managing director shri r.l. anand but it is admitted that now the property is that of the company.(3) two proceedings were originally initiated against the company. one was for its winding up being company petition no. 34 of.....
Judgment:

B.N. Kirpal, J.

(1) This appeal by the Company arises from the order of the learned single Judge rejecting the application of the Company under order 34 rule 5 Civil Procedure Code and confirming the sale of the Company's property in question namely, 88 Sunder Nagar, New Delhi in favor of M/s Amarjit Singh Johar & Company (hereinafter referred to as 'the auction purchaser').

(2) The relevant facts for the purpose of this appeal are that the Company besides being indebted to a large number of other creditors also owed a sum of approximately rupees ten lakhs to the Bank of Baroda (hereinafter referred to as 'the Bank'). The said debt was secured in January 1966 by an equitable mortgage being created of property No. 88 Sunder Nagar, New Delhi. The said property was at one time claimed to be the personal property of its then Managing Director Shri R.L. Anand but it is admitted that now the property is that of the Company.

(3) Two proceedings were originally initiated against the Company. One was for its winding up being Company Petition No. 34 of 1966. Another petition under Sections 391 and 392 of the Companies Act for sanctioning scheme of arrangement was also filed being Company Petition No. 42-D of 1966. During the pendency of those proceedings the secured creditor namely the Bank and the Company arrived at a compromise. On the basis of the said compromise Shankar J. passed an order on 10th May, 1968 in G.A. 86 of 1968. As per as the said order recording the compromise it was agreed that the Company would make payment within the stipulated period but in case the payment was not made the Bank would be entitled to realise the agreed amount by the sale of the said property. It may be mentioned that the application under Sections 391 and 392 being C.P. 42-D of 1966 was eventually sanctioned by Andley, J. on 29th July 1968.

(4) The Bank, however, did not receive the agreed amount from the Company. The Bank accordingly filed an application being C.A. No. 151 of 1973 in this Court for the enforcement of the aforesaid compromise. It was, inter alia, prayed that the said property be sold and the sale proceeds be given to the Bank in terms of the said compromise. On the said application Sachar,J. directed on 8th October 1973 that the property be sold by public auction. This order was challenged by the erstwhile Managing Director R.L. Anand whose appeal was allowed by the Division Bench on 14th May 1974. As a result of the said decision the case was remanded for investigation with regard to the sum of Rs. 2,05,000.00 being claimed by R.L. Anand in lieu of the relinquishment by him of his rights to the property. On remand Avadh Behari, J. directed that the property in question should be sold as envisaged by the said compromise. It was held by him that there was an equitable mortgage in favor of the Bank which had been created by the Managing Director by deposit of title deeds. He also upheld the claim of R.L. Anand for the sum of Rs. 2,05,000.00 .

(5) In pursuance to the aforesaid orders having been passed the requisite formalities were completed and eventually the property was sold by public auction held on 22nd December 1978. In the said auction the highest bid was that of the auction purchaser M/s. Amarjit SinghJohar& Co., whose bid was for a sum of Rs. 7,30,000.00 .

(6) The Company seems to have woken up thereafter and filed an application C.A. 41 of 1979. In the said application prayer was made by the Company that the sale be set aside. It was contended that the sale was not in the interest of the creditors and the sale was otherwise invalid. It was also alleged that the property could not be sold in view of an earlier income-tax attachment. It was further stated in the application that the Company had with it offer of Rs. 9,50,000.00 from various parties who were willing to buy the property. In the end it was also stated that the Company itself was in possession of sufficient funds and could pay the amount due to the Bank. The Board of Directors, it was stated had passed the resolution for applying to the Court for permission to pay the Bank.

(7) The Company, however, did not deposit any amount due to the Bank in Court nor did it make any payment to the Bank. The said application was opposed by the Bank as well as by the auction purchaser. The said application was decided by S. Ranganathan J. on 22nd February, 1979. The learned Judge held that the application in question, in these circumstances, could be preferred only under order 21 rule 89 or 90. He further held that the application could not be considered as being under order 21 rule 89 because the provisions of the said rule had not been complied with. He further held that the said provisions were also not applicable because whereas order 21 rule 89 application pre-supposes the admission by the judgmentdebtor that the sale is valid, in the present case, however, the applicantCompany was attacking the sale itself as being vitiated by fraud and material irregularities. He further held that it was not possible to set aside the sale even if the application is treated to be under rule 90, primarily because no material grounds had been set-out in the application for setting aside the sale under the said rule. Before the learned Judge it was stated that the Company had received one offer for sale of rupees eight lakhs. The learned Judge held that the said offer was not substantially different to warrant setting aside the sale specially when the Company would have to pay auctioneer's charges in respect to the sale already held. Another contention which was raised on behalf of the Company was that the Court should exercise its discretion under Sections 391 & 393 of the Companies Act and as the Company now had funds to pay the amount due to the Bank the sale should be set-aside. On the assumption that the said provisions were applicable, the learned Judge still held that on circumstances of the case it was not a case where the Court should set aside the sale. It will be pertinent to note that no money was at any time deposited by the Company for payment to the Bank till that stage.

(8) The Company filed an appeal against the judgment of Ranganathan, J. During the pendency of the appeal the Company also filed an application C.A. 275 of 1979, from whose decision the present appeal arises, under Order 34 rule 5 before the Company Judge. In the said application the Company prayed that 'instead of confirming the sale, the judgmentdebtor be allowed to deposit the decretal amount under the provisions of Order 34 rule 5 of C P.C. and the sale which has already taken place be set aside'. On 17th May, 1979 notice was issued to the non-applicants in C.A. 275 of 1979 and on that very day the appeal against the order of Ranganathan J. in C.A. 41 of 1979 was also withdrawn. The said appeal was withdrawn 'without prejudice to the appellants or auction purchaser's or Bank's or parties' right to contend whatever is available to them in law in the applications stated to have been made by the appellant under Order 34 rule 5 of Civil Procedure Code.

(9) Before the said application (C.A. 275 of 1979) came up for hearing after notice, the Company paid to the Bank the amount claimed by it in terms of the compromise. This payment was made without prejudice to the rights and interests of the various parties.

(10) The application C.A. 275 of 1979 was disposed of by H.L. Anand J. on 11th September, 1979. The learned single Judge came to the conclu that none of the provisions of the Code of Civil Procedure would be attracted even though the sale ordered by the Court may be carried out in accordance with the proecedure laid down in Code of Civil Procedure. He accordingly held that neither Order 34 nor Order 21 was available to the Company to get rid of the auction sale. Having come to the conclusion, the learned single Judge, however, held that the principles embodied in the aforesaid provisions could nevertheless be invoked. The learned Judge held the auction purchaser has no vested right in the property except the right to be compensated in case the sale is set-aside. The application was not allowed because, according to the single Jucdge, there was an impediment in the way of the Court exercising its discretion under Sections 391 and 392 of the Act. The learned Judge observed that this impediment was the order made by Ranganathan J.. which had become final and the appeal against which had been withdrawn. Having thus held that the sale could not be set-aside in view of the order of Ranganathan J., the learned Judge, notwithstanding the fact that he: held that the sale price of the property did not truly reflect its market price, nevertheless confirmed the sale by asking the auction purchaser to pay an additional 10 per cent of the sale price.

(11) In the appeal before us Shri K.K. Mehra, learned counsel for the Company has contenedd that he was entitled to invoke the provisions of Order 34 rule 5 Civil Procedure Code It was further contended that in any event the principles of Order 34 rule 5 could be relied on by him. In the alternative it has been argued that in any event in exercise of its inherent powers enshrined in Rule 9 of the Companies Court Rules, the Court should have set-aside the sale as admittedly the sale price which was received did not truly reflect the market value and, further more, the secured creditor had already been paid the amount in claim. It was lastly contended that in any event the Court ought not to have confirmed the sale.

(12) The auction purchaser has, on the other hand, contended that the provisions of Order 34 are not applicable and in view of the decision of Ranganathan J. it is not open to the Court to pass any orders which would be contrary to the order dated 22nd February 1979 of Ranganathan J. It is contended by the learned counsel on behalf of the auction purchaser that the sale could be set-aside only under Order 21 Rule 89 or 90 and the sale not having been so set-aside the same had to be confirmed in accordance with the provisions of Order 21 Rule 92. It is also urged that provisions of Order 34 are not applicable because no mortgage decree had been passed. These arguments were addressed by Shri Harihar Lal with great force and were also supplemented by filing of written submissions. Reliance was also placed on some decisions with reference to Order 21 Rules 89, 90 and 92.

(13) In our opinion the learned single Judge has rightly held that the provisions of the Code of Civil Procedure are not applicable to such proceedings. There is no provision under the Companies Act which make provisions of Orders 21 or 34 applicable as such. Reliance has been placed on behalf of the respondent on Section 634 of the Companies Act. Section 634, in our opinion, does not make any substantive provision of the Code of Civil Procedure applicable to the Company Court. Section 634 is only an enabling provision. It enables an order of the Court to be enforced by deeming it to be a decree. Whether such an order which can be enforced should be allowed to stand or varied, recourse would have to be had only to the provisions of the Companies Act and not to the technical provisions of Orders 21 or 34. There is no provision in the Companies Act which extends the provisions of the Code of Civil Procedure to such proceedings under the Companies Act. An order passed in the exercise of jurisdiction under the Companies Act cannot be set-aside or modified by taking recourse to the provisions of the Code of Civil Procedure.

(14) A company in respect of which proceedings under Sections 391 and 392 are going on is under the control of the Court It is the duty of the Court to look after the interest of the general body of share-holders and creditors and, as far as possible, to preserve the assets of the Company. The Court is enjoined to pass such orders as would protect the assets of the Company as effectively as possible. The powers which are given to the Court under Section 392 are of the widest amplitude. Moreover, under the provisions of Rule 9 of the Company (Court) rules the inherent powers of the Court have been preserved not with standing anything contained in the rules. The Court is entitled to give such directions and pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court.

(15) In the instant case the property was put to auction at the behest of the secured creditor, namely, the Bank. The amount due to the Bank was paid to it in full before the sale in favor of the auction purchaser had been confirmed by the order under appeal. It is obvious that if the money had been paid to the Bank before the auction proceedings had even started no objection could have been taken. Will it make any difference in principle if the Company instead of paying the amount to the Bank before the auction sale takes place pays it after the sale but before the confirmation? In our opinion there would be no difference in principle in such cases. The auction purchaser has no vested right in the property, except to receive compensation if the sale is set-aside. If the Bank has received the amount due, it would not be interested in the sale of the mortgaged property. Under such circumstances when every effort must be made to protect the assets and property of the Company the Court would indeed be duty bound not to confirm the auction sale.

(16) It has been observed by the learned single Judge, and in our opinion rightly, that at the time when the application G.A. 41 of 1979 was argued the provisions of Order 34 Rule 5 were not in the mind of the learned Judge, Ranganathan J. The learned single Judge ought not to have been fettered by the judgment of Ranganathan J., inter alia, for the following reasons: a. Ranganathan J. was not concerned with provisions of Order 34 nor the principles thereof. b. No money had in fact been paid by the Company to the Bank whereas the Bank had now been paid the amount due to it. e. It was for the first time admitted before the learned single Judge in these proceedings that the sale price did not truly reflect the market price of the property. d. Ranganathan J. was not concerned with the question of confirmation of sale.

(17) Though Order 21 and Order 34 do not in term apply, we agree with the learned single Judge that the principle, of the salutary provision may be applied in given circumstances. Order 34 Rule 5 and Order 21 Rules 89 and 90 operate in different fields. Order 34 Rule 5 gives a right to the mortgagor to deposit the amount due under the mortgage at any time before the confirmation of the sale and if such a deposit is made the payment has to be accepted and an order made in favor of the judgment-debtor. The Supreme Court in the case of Hukumchand v. Bansi Lal and others : [1967]3SCR695 , while referring to Order 34, has inter alias held as follows : 'Order Xxxiv Rule 5(1) gives an opportunity to the judgment- debtor in a mortagage decree for sale to deposit the amount due under the mortagge decree at any time before the confirmation of sale made in pursuance of the final decree and if such a deposit is made the court executing the decree has to accept the payment and make an order in favor of the judgment-debtor in terms of Order Xxxiv, Rule 5(1).'

(18) The said decision clearly brings out that the underlying principle of order 34 is that when the mortaggee, at whose instance the property is being sold, has been paid before the confirmation of the sale it will be equitable that the sale should be set-aside. This right under order 34 is available only in the case of mortgage decrees. The right under order 34 rule 5 is in no way restricted by the provisions of order 21 rule 89 or 90. The aforesaid decision of the Supreme Court, which was relied upon by the learned counsel for the auction-purchaser, is not helpful to him. The said case was primarily concerned with the question as to whether time could be extended under order 34 rule 5. The Supreme Court said that order 34 rule 5 and order 21 rule 92 has to be harmoniously interpreted. The Supreme Court upheld the right of the mortgagor to deposit the amount due at any time before the confirmation of sale but only held that the said provision could not be utilised for getting extension of time in depositing the money. In the present case the amount due to the Bank having been paid the sale of the property in question in favor of the auction purchaser is liable to be set-aside.

(19) Even assuming that the learned single Judge was right in coming to the conclusion that the sale should not be set-aside because of the judgment of Ranganathan J., we are of the opinion that the learned single Judge erred in confirming the sale. When property is sold in such proceedings under the Companies Act under the directions of the Court it is for the Court to see whether sale should be confirmed or not irrespective of the fact whether any objection to the sale has or has not been filed. In other words a Company's Court must on its own find whether the confirmation of sale would be in the interest of the Company or not. The circumstances and situation may change from time to time. If at an earlier point of time the Company's Court felt that property should be auctioned it would not preclude the Court from later on coming to a contrary conclusion. The Court can subsequently hold that the confirmation of sale would not be in the interest of the Company, if the circumstances so warrant. In the instant case the learned single judge having held that the sale price did not truly reflect the market price of the property and the secured creditor at whose instance the property had been sold having been paid in full the learned single Judge ought not to have confirmed the sale. The Court is a custodian of the Company and must make every effort to protect and preserve its property. It is not bound by the technicalities of the Code of Civil Procedure and in exercise of its powers under Section 392 of Companies Act and rule 9 of the Company (Court) rules it can refuse to confirm the sale. The instant case is one where the learned single Judge ought to have exercised such powers and refused to confirm the sale even if he could not set aside the sale on the application being filed under order 34 by the Company, Order 21 rule 92 is in terms not applicable to such sales and the Court is not bound to confirm every sale which has been made in pursuance to the orders for sale issued by it when the reasons for such sale has disappeared with the secured creditor having been paid in full.

(20) The respondent has contended that in the event of the sale being set-aside or not confirmed he should be entitled to compensation. The amount claimed by the respondent under each head is as follows : 1. solarium to auction purchaser @ 5% of the enhanced sale price of Rs. 8,03,000.00 Rs.40,150.00 2. Reimbursement of stamp duty of Rs. 24,090.00 paid by auction purchaser in respect of the certificate of Sale dated the 27th Sept. 1979.........Rs. 24/)90.00 3. Interest payable by auction purchaser to the Bank on money borrowed for & in connection with purchase of the property, @ 18% per annum (on Rs. 7.30 lakhs paid as auction purchase price in Dec. 1978/Jan. 1979 and additional purchase price of Rs. 73,000.00 and stamp duty of Rs. 24,090.00 paid in Sept. 1979).........Rs. ],36,000.00 approx. 4. Legal charges and costs incurred by auction purchaser in respect of various proceedings instituted by the appellant Company from time to time. Rs. 25,000.00 approx. Total Rs. 2,25,240.00 .

(21) Fn our opinion, as the sale is not being confirmed by us and is being set-aside by this order, the respondent would be entitled to be solarium of 5% on the enhanced sale price of Rs. 8,03000.00 which amount comes to Rs. 40,150.00 . The respondent would further be entitled to receive by way of reimbursement the aforesaid amount of Rs. 24,090/. We, however, see no justification for allowing any interest to the respondent. In our opinion as the solarium of 5 /' is being awarded, the question of any interest being paid over and above the said 5/o cannot arise. The mere fact that the auction purchaser did not have money of its own and borrowed the money from the Bank in order to make the payment to the Court cannot be a ground for compensating it for the interest which it might have paid to the Bank. With regard to the sum of Rs. 25,000.00 claimed by it as legal charges and costs, we are again of the opinion that there is no warrant for allowing such a payment. In considering as to what compensation should be paid to the auction purchaser, we may well be guided by the principles in the Code of Civil Procedure, namely Order 21 Rule 89 and Order 34 Rule 5(2). In any event there is nothing on record to show as to what is the exact amount of legal charges and costs incurred by the auction purchaser.

(22) We accordingly allow the appeal, set aside the order dated 11th September, 1979 of H.L. Anand J. and the sale dated 22nd December 1978 is not confirmed by us. In vew of this finding the auction purchaser would be entitled to the refund of the sum deposited by it and addition thereto the Company must pay to the auction purchaser the aforesaid amounts of Rs. 40,150.00 and Rs. 24,090.00 . We direct that the sum deposited by the auction purchaser should be paid to it forthwith and the aforesaid amount of Rs. 64.240.00 should be paid by the Company to the auction purchaser within four weeks of the passing of this order. In the event of the Company not paying the said amount or depositing the said money in Court within the stipulated period, the auction purchaser will be entitled to interest at the rate of 18% per annum on the said amount and would also be entitled to get the property in question sold for the realisation of the said amount.

(23) We are told that a sale certificate was issued to the auction purchaser. In. as much as the sale is not confirmed and the auction sale is thus of no avail, we direct M/s. Amarjit Singh Johar & Company to surrender the sale certificate and the same shall be cancelled.

(24) In the circumstances of the case the parties to bear their own costs.


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