Supreme Court: In a batch of two appeals against Judgment and Order of the Division Bench of the Punjab and Haryana High Court, wherein, the auction held pursuant to auction notice by Industrial Development Bank of India (‘IDBI’) was set aside, the Division Bench of Ajay Rastogi* and Bela M. Trivedi, JJ., dismissed the appeals and said that it did not find any error in the High Court’s Order. The Court while upholding the decision of the High Court, discussed the concept of auction and bidding.
Factual Matrix
Bharat Commerce and Industries Limited (‘BCI’) was declared a sick company and for disposal of assets of BCI pursuant to the directions of the Board for Industrial and Financial Reconstruction (‘BIFR’) under Section 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 (‘the Act, 1985’) through Industrial Development Bank of India (‘IDBI’) which was the Operating Agency, initiated the process of inviting offers in sealed cover for sale of assets of the captioned unit.
The BIFR, pursuant to its order dated 24-11-2004, observed that since the sole bidder for Block IV (the appellants) is not willing to adhere to the ASC guidelines as such the Bench did not agree to the proposal to accept the bid and left the sale of the assets of the unit for Block IV be taken over and be sold by the Official Liquidator of the High Court concerned. The decision of the BIFR dated 24-11-2004 was challenged by the present appellants before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). The AAIFR under its Order dated 1-04-2005, while setting aside the order of the BIFR dated 24-11-2004, 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. That became the subject matter of challenge by way of a writ petition before the High Court at the instance of BCI Staff Colony, Residential Welfare Association and its members under Article 226 of the Constitution.
The Division Bench of the High Court after revisiting the records of the bidding process and the procedure adopted by the Operating Agency arrived at a conclusion that the appellants had not made the payment in terms of the guidelines of the ASC and failed to furnish the bank guarantee and to deposit the purchase consideration at the relevant point of time. The Division Bench had set aside the order of the AAIFR dated 01-04-2005 and restored the order of the BIFR dated 24-11-2004 with a further direction that the money which was deposited by the appellant, be returned with interest at the rate of 8 percent (simple) from the date of its deposit till the amount is refunded with liberty to sell the property.
Therefore, aggrieved by the said decision of the High Court, the appellants had filed the present appeal.
Analysis and Decision
The Court said that the process was initiated by the Operating Agency (IDBI) to sell the subject assets of the BCI in terms of the order passed by the BIFR in exercise of its power under Section 20(4) of the Act, 1985. The Operating Agency was under an obligation to obtain the valuation report of the subject property and after due assessment must arrive at the reserve price for the sale of the property in terms of Section 21(c) of the Act, 1985 and thereafter proceed with a procedure known to law while adopting a method for the sale of the assets by public auction or by inviting tenders or in any other manner specified and for the manner of publicity therefor in terms of Section 18(2)(k) of the Act, 1985.
The Court referred to the terms and conditions of the Asset Sale Committee (‘ASC’) which the bidder was supposed to comply and said that the appellants (auction bidder) neither paid the sale consideration in terms of clause (h) of the guidelines nor furnished the bank guarantee within 15 days of the acceptance of the bid in terms of clause (i) of the guidelines.
The Court noted that when the matter was placed before the BIFR, the Bench took note of the fact that the appellants were the sole bidder for Block IV of the Rajpura Unit and have not complied with the ASC guidelines. Taking both the factors into consideration: (i) the appellant being the sole bidder; and (ii) guidelines of ASC were not been complied with, the bid of the appellants was not confirmed but on appeal being preferred by the appellants, the AAIFR did not take 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 should always to be taken care of to secure the optimized value of the property. It was also noted that the appellants showed their willingness to deposit the bid amount in two instalments on 20-09-2004 and 10-11-2004, but even before the order came to be passed by the BIFR, neither the bank guarantee was furnished nor a single instalment was deposited by the appellants and thus, the Court viewed that the AAIFR was wrong in setting aside the Order of BIFR. The Court noted that the Division Bench of the High Court had revisited the entire proceedings and considering the fact that there was no competitive bidding which is a sine qua non for public auction and guidelines of the ASC were not complied with, accordingly the order of the AAIFR was set aside with a further direction to initiate the process afresh in accordance with law. The Court concluded that it did not find any error in the view expressed by the High Court. The Court directed that the money deposited by the appellants in another Civil Appeal shall be refunded in terms of the High Court’s Order, dated 5-02-2010. The Court also directed the official liquidator to take all the reasonable steps to fetch the optimum value of the property in order to achieve the object of public auction.
• Concept of Auction and Bidding
Further, the Court discussed the concept of auction and bidding. The Court said that the object of an auction is to secure optimum realizable value of the property by giving an opportunity to the potential buyers facing competitive bids either in open or closed format. The terms ‘auction’ or ‘bid’ are inter-related as both give the idea of selling the product to the public. Bidding involves the process where a person offers a price which is known as a bid. The Court explained that the process of bidding takes place in a situation where large number of people show their willingness to buy a particular product or a service and bidding in a sealed envelope is often used by various companies, industries and small businesses for assessing the needs of the public at large. The Court said that on the other hand, auction is a process that involves buying and selling goods and services by offering them for bids, taking bids and selling the item to the highest bidder and that is possible if there is a competitive bidding between the bidders. The purpose of auction (open or close format) is to get the most remunerative price and giving of an opportunity to the intending bidders to participate and fetch higher realizable value of the property. The Court also said that if that path is cut down or closed, the possibility of fraud or to secure inadequate price or underbidding would loom large. In such circumstances, it is the duty of the Court to exercise its discretion wisely and with circumspection and keeping in view the facts and circumstances in each case.
[Rajiv Kumar Jindal v. BCI Staff Colony Residential Welfare Assn., 2023 SCC OnLine SC 507, Decided on 27-04-2023]
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