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PETITIONER:

ALLAHABAD BANK ETC. ETC.

Vs.

RESPONDENT:

BENGAL PAPER MILLS CO. LTD. AND OTHERS

DATE OF JUDGMENT: 13/04/1999

BENCH:

S P Bharucha, R C Lahoti,

JUDGMENT:

Bharucha, J.

The relevant facts need to be set out to appreciate

what is involved in these appeals from the judgment and

order of a Division Bench of the High Court at Calcutta.

In June, 1985 a winding petition was filed against the

first respondent company, now in liquidation (the said

company). On 30th September, 1986 a mortgage suit (Title

Suit No.143 of 1986) was filed by the Punjab National Bank

and the Bank of Baroda against the said company for recovery

of the sum of Rs.1,94,24,886.37 before the Subordinate

Judge, Burdwan. On the same day a hypothecation suit (Suit

No.736 of 1986) was filed by the United Bank of India, the

Punjab National Bank and American Express against the said

company for recovery of the sums of Rs.20,46,010.31 and

17,87,796.49 in the Calcutta High Court. On the same day, a

hypothecation suit (Suit No.737 of 1986) was filed by the

Allahabad Bank against the said company for recovery of the

sums of Rs.29,18,360.65 and 11,64,370.00 in the Calcutta

High Court. Again on the same day, the Punjab National Bank

and American Express filed a hypothecation suit (Suit No.738

of 1986) against the said company for the recovery of the

sums of Rs.5,30,38,922.28 and Rs.2,14,548.00 in the Calcutta

High Court. On 3rd December, 1986 the Calcutta High Court

passed an interim order in Suit No.738 of 1986 appointing

joint receivers. From time to time, further orders were

passed in the same suit for inventory and sale of the

hypothecated goods.

On 24th April, 1987, in the winding up petition

aforementioned, the said company was ordered to be wound up

and the Official Liquidator was directed to take possession

of the said companys assets and properties. On 15th May,

1987 an application was moved under Section 446 of the

Companies Act by the Punjab National Bank and American

Express for leave to carry on with their suits; also for

transfer of the mortgage suit filed in the Burdwan court to

the Calcutta High Court. On 15th May, 1987 the application

was allowed and the suit transferred from the Burdwan court

to the Calcutta High Court was numbered (T.C. Suit No.5 of

1987). In June, 1987 the Allahabad Bank made an application

under Section 446 of the Companies Act for leave to carry on

with its suit and on 26th June, 1987 such leave was granted.

On 25th November, 1987, the Official Liquidator wrote to the

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joint receivers in respect of the possession of the assets

and records of the said company held by them. On 30th

November, 1987 the joint receivers replied to the Official

Liquidator; therein they stated that the hypothecated goods

could not be sold due to lack of offers.

On 11/12th January, 1988 the Punjab National Bank made

an application to the Calcutta High Court in the transferred

suit praying that the Official Liquidator should be

appointed receiver in place and stead of the joint receivers

in Suit No.738 of 1986 with directions to take possession,

make inventory and sell the securities both in the

transferred suit as well as in Suit No. 738 of 1986. The

application was allowed on 12th January, 1988. On 28th

April, 1988 the joint receivers wrote to the Official

Liquidator confirming that they had handed over possession

of the securities they held to him.

On 25th November, 1988 the High Court appointed a

valuer of the said companys assets and properties. On 29th

June, 1989 an order was passed in the winding up petition

giving to the Official Liquidator leave to sell the assets

and properties of the said company by public auction by

inviting sealed tenders upon advertisements once in the The

Statesman once in Jugantore and once in Biswamitra as

per usual terms and conditions of sale. The sale was to be

held on 15th September, 1989 at 2.00 pm in Court. The

Official Liquidator was directed to issue the advertisements

at least three weeks prior to the sale and to give notice to

the valuer asking him to be present on the date of the sale.

The Official Liquidator, the secured creditors and the

valuer were required to act on a signed copy of the minutes

of the order.

On 14th August, 1989 the sale notice was issued. It

stated that the sale was of the entire moveable and

immovable assets of the said company lying in its factory

premises at Ballavpur, Ranigunge, District Burdhaman and

moveable assets lying in its registered office at Calcutta.

The sale was to be on as is where is and whatever there is

basis. The terms and conditions of sale were stated to be

available at the office of the Official Liquidator.

Clause (1) of the terms and conditions of sale stated

that the sale would be as per inventory on as is where is

and whatever there is basis and subject to the confirmation

by the Court. Clause (3) stated that the offer made by

intending purchasers should be contained in a sealed cover

enclosing a bank draft or pay order equivalent to 10% of the

offer. Clause (5) stated that the successful purchaser

will have to pay the balance purchase price to the Official

Liquidator within a week from the date of sale by the Court

either by bank draft or pay order. It is made clear that

this would not prevent the Court from fixing any other date

for such deposit or extending such time even if such time

has expired on such terms and conditions as the court may

deem fit. Clause (9) stated that the sale would be

subject to such modifications/alterations of terms and

conditions of sale as the Honble Court deems fit and proper

and the decision of the High Court shall be final.

In pursuance of the advertisement for sale the second

respondent made an offer on 14th September, 1989. It is

this offer which was accepted and, therefore, its terms are

relevant. It stated that the second respondent was

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interested in the purchase of the entire moveable and

immovable assets of the said company with a view to reviving

it as an on going paper mill. The second respondent had

entered into discussions with existing labour unions and the

State Government and had entered into a memorandum of

understanding with the labour unions for reopening the paper

mill to run it, taking workmen from existing employees. The

offer was for the sum of Rs.1,50,00,000/- and bank drafts

for the aggregate amount of Rs.15 lakhs were enclosed. The

offer stated, If our bid is successful we shall complete

the payment of the 25% of the sale value within a fortnight

and take the possession. For the balance we shall pray to

the Honble High Court, Calcutta to allow us the instalments

facility to pay off (balance) amount for which we shall

however arrange a bank guarantee to cover the entire sum.

We would, therefore, request for a clear order of the

Honble High Court transferring the assets of the said

company in the usual manner ..........

On 15th September, 1989, the judgment and order of

sale which was challenged before the Division Bench was

passed. The learned Single Judge recorded that the Official

Liquidator had received, pursuant to the advertisements,

three offers, one of which was by the second respondent for

Rs.1,50,00,000/-, the other was only with regard to the sale

of furniture and the third was for Rs.1,10,00,000/- for the

sale of the assets. The sale of assets had taken place in

the open court though there were no further bidders at the

auction. The offer of Rs.1,50,00,000/- had been

subsequently raised to Rs.2 crores by the second respondent.

The Advocate General for the State of West Bengal, appearing

for the second respondent, had submitted that the concerned

unit would not be disposed off as scrap but would be used as

a going concern. An agreement had already been reached with

the union affiliated to the CITU containing detailed terms

and conditions as to the working of the mill. The Advocate

General had produced a letter from the Bengal Paper Mill

Mazdoor Congress affiliated to INTUC wherein an unequivocal

acceptance of the terms had been recorded. The Advocate

General had assured the Court that 1700 people would be

re-employed within a span of two weeks and to those who

could not be taken in necessary compensation would be paid,

which might exceed Rs.50 lakhs. The learned Single Judge

recorded that the learned advocate appearing for the

secured creditors has raised no objection excepting however

that the prayer for direction on the Official Liquidator for

disbursement of some money to the secured creditors as a

long period of time has already elapsed in the meanwhile.

The learned Single Judge then passed the following order:

Considering the above and considering the factum of

re-employment of 1700 people of the Mill which has been

under closure for the last 7-8 years, the sale in favour of

M/s. Eastern Minerals & Trading Agency (Paper Division)

ought to be confirmed at Rs.2 crores,. It is ordered thus

accordingly. consequently directions follow.

It is recorded that a total sum of Rs.20 lakhs has

been made over to the Official Liquidator in court today and

the Official Liquidator is, therefore, thus directed to make

over possession of the Mill premises to the purchaser by

tomorrow.

The purchaser is directed to furnish further bank

guarantee for a further sum of Rs.30 lakhs by 26th Septemer

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1989, which will be kept in deposit with the Official

Liquidator. In the event, however, the purchaser fails to

furnish such bank guarantee within the time stipulated

above, the Official Liquidator is directed to bring it to

the notice of this Court on 27th September, 1989 for further

orders.

The purchaser is further directed to pay a sum of

Rs.30 lakhs to the Official Liquidator as against the

purchase price within four weeks from date. Balance 75% of

the purchase price, that is, Rs.1.50 crores will be paid by

the purchaser by quarterly instalments of Rs.15 lakhs each.

The first quarter, however, commencing from 1st January,

1990. In default of payment of a sum of Rs.30 lakhs or any

one of the quarterly instalments as above, the Official

Liquidator is also directed to apply before this Court for

necessary directions.

The secured creditors protested against the statement

in the judgment and order that referred to them and the

learned Single Judge, on 27th September, 1989, directed that

the order dated 15th September 1989 is modified to the

extent that the 9th line of the 6th paragraph of the said

order, after the words all the secured creditors should be

read as has made a prayer. As so modified, the relevant

part of the sentence reads: the learned advocate appearing

for all the secured creditors has made a prayer for

direction on the Official Liquidator for disbursement of

some monies to the secured creditors ........

Appeals were filed by the banks against the orders

dated 15th September, 1989 and 27th September, 1989. The

appeals were disposed off by the order that is under

challenge.

The Division Bench noted that the valuation report was

not disclosed to any of the banks, but it stated that it

appeared from the valuation report produced before it that

the total value of the assets of the said company was

estimated by the valuer to be Rs.6,22,16,875/- Since the

valuation report was not disclosed to the banks, the banks

had had no opportunity to object to the valuation made.

According to the advocate appearing on behalf of the banks,

the proper valuation of the assets should have been much

higher; the loans granted by the banks were fully secured

and should have been fully recovered if the assets had been

sold at a proper price. Since the valuation report was not

shown to the banks, the banks had had no opportunity to

point out the defects in the valuation report. The said

company had 15.2.73 acres of lease-hold land. This was not

taken into consideration by the valuer on the ground that

the lease was only upto 14th October, 1992. The valuer had

not indicated whether he had examined the lease-deed or

whether there was any renewal clause in it. Counsel on

behalf of the banks had submitted that no proper effort was

made to obtain a fair market price for the property sold.

Advertisements should have been given all over India,

particularly in Bombay, Delhi, Madras and other important

commercial centres, to obtain the best possible price. This

had not been done. Because of the non-disclosure of the

valuation report, the secured creditors were unable to raise

any objection and were not in a position to know whether the

assets had been sold at a low price. The assets were the

securities of the banks. The banks had filed several suits

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and receivers had been appointed. The assets could not have

been sold without the written consent of the banks and the

banks had not agreed to the sale of their securities. The

Division Bench found itself unable to uphold the latter

contention advanced on behalf of the bank for the banks had

participated in the sale from the very beginning. No

objection had been raised by the banks to the proposed sale

of the assets. The sale was concluded in the presence of

the advocates appearing on behalf of the banks. A variation

of the learned Single Judges order was made at the instance

of the banks. At no point of time did the banks object to

the sale of the assets or the price at which the assets were

sold. Learned counsel for the banks contended that what was

actually sold was the equity of redemption in the secured

assets. The Division Bench found that this stand had not

been taken by the banks before or at the time when the sale

took place. Counsel had contended that the mortgages could

be given up only in writing and not otherwise and he had

pointed out that the mortgage suits filed by the banks were

still pending. The Division Bench was unable to uphold this

contention to set aside the sale because in a case like

this some sort of promptitude was expected from the banks.

No allegations of fraud had been made against the purchaser.

The purchaser had purchased the properties in a court sale

and had promised to give employment to 1700 workmen of the

said company. The purchaser had incurred expenditure for

running the factory and for that purpose had entered into

contracts with various parties. Another important aspect of

the case was that no appeal had been preferred against the

order of sale till 3rd February 1990 and no stay of its

operation had been asked for. Counsel for the banks had

contended that the appeals were filed within the period of

limitation. The Division Bench countered that that might be

so, but the purchaser had been allowed to take possession

after the sale. He had employed persons and placed orders

without objection from the banks. It was only after these

things had happened that the banks woke up. The delay was

found fatal to the case of the banks. But, the Division

Bench added :

There is, however, considerable force in the argument

of Mr. Mitra that the sale was made with undue haste. The

proposal for sale of a large paper mill should only have

been effected after giving wide publicity all over India.

Moreover, the successful bidders offer should have been

examined in depth before acceptance. Some enquiry should

have been made to find out the number of workers actually

employed by the company in liquidation at the time of the

closure of its mills. No attempt was made out to find out

how many of those workers were still unemployed and whether

the Trade Union with which the purchaser had entered into an

agreement represented all the unemployed workman of the

company in liquidation. It appears that 1700 of the workmen

of the company have not been re-employed. No attempt was

made to find out whether there was any outstanding

liabilities of the company, statutory or otherwise, in

respect of its workers. The company might have other

liabilities. The nature and extent of such liabilities were

not found out. The sale of the asse5ts should not have been

made in a way to deprive the right of all the creditors,

including the banks, to proceed against the assets of the

company to realise their dues.

The Division Bench then stated :

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However the only parties that have come to this Court

for setting aside the sale are the banks who had

participated fully at every stage of the sale. The banks

were represented at the time when the decision was taken to

sell the assets of the company. The banks were also present

when the sale was finalised. The banks had also got the

matter mentioned for effecting certain corrections in the

sale order and a prayer was made for disposal of the sale

proceeds. It does not appear that the banks were under any

misapprehension that the secured assets were being sold.

The banks had participated in every proceedings which

culminated in the sale of the assets and made a prayer for

prompt payment out of the sale of the assets. They cannot

after a lapse of five months turn around and pray for

setting aside the sale on the ground that the banks

interests were not properly protected at the time of the

sale. ..........

In the facts and circumstances of the case and having

regard to the conduct of the bank, this application must be

dismissed.

It is to be noted that no reserve price for the sale

was fixed. Why this should have been so is not understood,

particularly having regard to the fact that a valuer had

been appointed of the assets and properties and a report

obtained. The valuation report was not disclosed. The

order of the learned Single Judge does not set out what the

valuation of the property that was sold was. It does not

even state that, in view of that valuation, the offer of

Rs.2 crores made by the second respondent was a fair and

adequate price. Further, the learned Single Judge did not

notice what the Division Bench did, namely, The Company had

15.2.73 acres of leasehold land. This was not taken into

consideration by the valuer on the ground that the lease

period was only upto 14th October, 1992. The valuer has not

indicated whether he had examined the lease deed or whether

there was any renewal clause in the lease agreement. The

valuation was, therefore, itself suspect.

The sale was advertised once only in three newspapers,

two of which at least were local newspapers. For a sale of

the magnitude of that with which we are concerned, this was

surely inadequate publicity. Inadequate publicity

necessarily suggests the possibility that a better price

could have been obtained.

The learned Single Judge would appear to have been

carried away by the prospect that 1700 people would be

re-employed. He did not appreciate that the said companys

ex-employees were only some of its creditors and that they

stood on no better footing than its other unsecured

creditors. No order could have been passed that, while it

favoured them, took no account of other unsecured creditors.

The employees of the said company had been, as the order of

the learned Single Judge itself shows, out of employment for

7 to 8 years but the learned Single Judge did not inquire

how many of them had secured other employment in the

intervening years.

The learned Single Judge did not ascertain and set out

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what the total amount of the claims, secured and unsecured,

against the said company was and whether the assets and the

property of the said company, other than those sold, were

adequate to pay off these claims, even in part. The learned

Single Judge did not even ascertain and state how many

unsecured creditors there were, what the aggregate amount of

their claims was and what part thereof could be ascribed to

the erstwhile employees of the said company. The learned

Single Judge did not, it appears, appreciate that his

principal obligation in conducting and confirming the sale

was to the body of creditors of the said company and that

the obligation was to ensure that the best possible price

had been procured from whereout they could recover at least

some part of their dues.

The learned Single Judge appears not even to have

noticed that the offer of the second respondent was not in

accordance with the terms and conditions of sale inasmuch as

it contemplated a payment schedule that was at variance with

the terms and conditions of sale. There is no discussion in

the order of the learned Single Judge about why it was

thought fit to entertain such an offer.

There was another offer before the learned Single

Judge to purchase the assets and properties of the said

company for the sum of Rs.1.10 crores. No details of the

offer are set out in the order of sale. If it was in

accordance with the terms and conditions of sale, it should

have been considered and compared to the second respondents

offer. This offerer did not, apparently, raise his offer,

but he might have done so if he have been told that he could

have the same liberal payment terms that the learned Single

Judge gave to the second respondent after it had raised its

offer. No reason was given by the learned Single Judge in

the order of sale as to why he thought it necessary or

proper to give to the second respondent these very liberal

terms. It is to be noted that these terms are even more

liberal than those asked for in the offer.

Though only 10% of the price had been received and

there was a direction to furnish a bank guarantee for Rs.30

lakhs 10 days thereafter, and the balance purchase price was

to be received only after a very long period of time the

learned Single Judge directed the Official Liquidator to

hand over to the second respondent the possession of the

assets and properties by tomorrow.

The observation of the Division Bench in the order

under appeal that the sale was conducted with undue haste is

very appropriate. So are the other critical observations

that the Division Bench made, which we have quoted above.

It could not but have been obvious to the Division Bench,

therefore, that there was every possibility that the sale

had not procured the best possible price. Even so, the

Division Bench did not interfere with the order of sale,

because, in its view, the second respondent had been allowed

by the banks to take possession of the assets and properties

and to incur expenditure. In our view, the Division Bench

was in error.

Upon liquidation, the assets and properties of the

company in liquidation vest in the Official Liquidator for

the benefit of its creditors. It is only from out of the

sale proceeds of these assets and properties that the

creditors of the company can hope to recoup their dues. To

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ensure that the best possible price is realised upon the

sale of these assets and properties, the sale thereof by the

liquidator is required to be confirmed by the High Court.

It is the obligation of the High Court to the creditors of

the company in liquidation to make sure that the best

possible price has been realised.

In Navalkha & Sons vs. Sri Ramanya Das & Ors.,

1970(3) SCR 1, this Court quoted Rule 273 of Companies

(Court) Rules, 1959, thus : Procedure at sale. - Every

sale shall be held by the Official Liquidator, or, if the

Judge shall so direct, by an agent or an auctioneer approved

by the Court, and subject to such terms and conditions, if

any, as may be approved by the Court. All sales shall be

made by public auction or by inviting sealed tenders or in

such manner as the Judge may direct.

It then said :

The principles which should govern confirmation of

sales are well-established. Where the acceptance of the

offer by the Commissioners 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, A.I.R. 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 Rathnaswami Pillai

v. Sadapathi Pillai, A.I.R. 1925 Mad. 318, and S.

Soundarajan v. M/s Roshan & Co., A.I.R. 1940 Mad. 42. In

A. Subbaraya Mudaliar v. K. Sundarajan, A.I.R. 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...................

It is also well to remember that, for the most part,

the creditors of a company in liquidation are small trade

creditors whose dues are not so large as would make it

economical for them to resort to proceedings in court. It

is these small creditors that the High Court is expected to

protect when confirming a sale by the liquidator.

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We think that the Division Bench lost sight of what is

stated above. It could not have realistically expected the

ordinary unsecured creditors of the said company to have

filed appeals on the ground of inadequacy of the sale price.

It could not have turned a blind eye to the many defects

that it itself noted in the order of sale merely because the

banks had moved the appeals after five months; nor was

there any justification for taking into consideration the

expenditure that had been incurred by the second respondent

subsequent to its possession of the assets and properties.

In the first place, the Division Bench should have noted

that the learned Single Judge had with unseemly haste

ordered possession thereof to be handed over to the second

respondent on the very next day. In the second place, the

appeals had been filed within the period of limitation.

Expenditure incurred during this period could not render the

appeals, in effect, infructuous. The same would apply to

expenditure incurred subsequent to the filing of the appeals

and until the time that they were heard. The second

respondent knew that the appeals were pending and that they

could end in the order of sale being set aside. Such

expenditure as it incurred with this knowledge was at its

risk. In the third place, and most important, the interests

of the creditors of the company, particularly the unsecured

creditors, overweighed such equities, if any, as might have

been considered to be in favour of the second respondent.

It was, in our view, the obligation of the Division Bench to

have struck down the order of sale, having regard to what it

found wrong with it.

It was contended on behalf of the second respondent,

the State of West Bengal and the employees that, whatever we

might think of the order of sale, we should not interfere.

For the reasons that we have stated, we cannot agree. The

interests of the creditors of the said company are

paramount, as is the obligation of the Court to them. That

the second respondent has incurred expenditure and

obligations, which were detailed, subsequent to the passing

of the order of sale and upto date cannot, in the

circumstances, deter us from setting aside the order of

sale. The second respondent knew that the appeals were

pending. It should have appreciated that the order of sale

was very vulnerable, given what the Division Bench of the

High Court had to say about it. It consciously took the

risk of incurring the expenditure and obligations and it

cannot take shelter behind them.

It was submitted by learned counsel for the second

respondent that we should vary the terms upon which the

offer of the second respondent was accepted to overcome the

prejudice to the said companys creditors. We have no

materials upon which we can do so, apart from the fact that

to do so would be wrong in principle. We do not know and

have no means of knowing what the fair value of the said

assets and properties that were sold was; that could only

have found after a properly advertised sale had been held.

We do not know, and counsel were unable to tell us, what the

totality of the claims against the said company are.

Learned counsel for the banks had contended before the

Division Bench of the High Court that the mortgages could

only have given up by the banks in writing and not otherwise

and he had pointed out that the mortgage suits by the banks

were still pending. He had also contended that what was

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sold to the second respondent, in any event, was only the

equity of redemption in the mortgaged property. These

contentions were repeated before us. On behalf of the

second respondent it was contended, on the other hand, that

the banks had given up their securities and become unsecured

creditors.

It is to be noted that on 11th-12th January, 1988, the

Punjab National Bank had made an application to the High

Court in the transferred suit and prayed that the Official

Liquidator should be appointed receiver in place and stead

of the joint receivers in Suit No.738 of 1986 with

directions to take possession, make inventory and sell the

securities both in the transferred suit as well as in Suit

No.738 of 1986, which application was allowed on 12th

January, 1988. It is not clear from the submissions

whether, as a result, the Official Liquidator was appointed

receiver of the mortgaged properties in the transferred

suit. It is also not clear whether any similar application

had been made by the other banks in their suits. It is

pertinent to note that in the subsequent order dated 29th

June, 1989 passed in the winding up petition, giving to the

Official Liquidator leave to sell the assets and properties

of the said company, reference was made to the secured

creditors. Similar reference was made to the secured

creditors in the order of sale. There is also some

substance in the contention based on the fact that the

mortgage suits were pending when the order of sale was made

and that the mortgage securities could not ordinarily have

been held to have been given up without express writing to

this effect. On the other hand, it needs to be pointed out

that it appears that the banks did not at any time prior to

the order of sale require that the sale proceeds, insofar as

they related to properties secured in their favour, should

be kept apart to the credit of their suits. It is,

therefore, a moot question as to whether the banks had given

up their securities before the order of sale, but we cannot

resolve the question in the absence of the full record for

this was a question that arose incidentally in the appeals

from the order of sale. We think that this is a question

that has now to be left to be answered by the High Court on

appropriate applications by the banks.

At the same time, it is perfectly clear to us that it

was not the equity of redemption alone in the secured

properties that was sold for, had that been so, there should

have been express mention to that effect in the terms and

conditions of sale.

In an additional affidavit filed on behalf of the

second respondent before this Court it is stated that the

said company had shown no interest in renewing the lease of

the property which was the subject matter of the sale and

that in order to continue to lawfully remain in possession

to run the paper mill, the Bengal Paper Mills (1989) Co.

Ltd., floated by the second respondent and its associates,

had obtained the lease in its favour from the State of West

Bengal. The order of sale in favour of the second

respondent being liable to be set aside, everything

consequential thereon must necessarily also be set aside.

The lease, patently, was obtained as a consequence of the

order of sale. For doing complete justice, therefore, it is

necessary to set aside the lease.

Learned counsel for the second respondent submitted

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that the second respondent would be entitled to recover the

sale price as also all expenditure that it had incurred

consequent upon the order of sale. We are in no doubt that

the Official Liquidator must refund to the second respondent

the sum of Rs.2 crores. As to any other expenditure, the

second respondent must apply to the High Court and satisfy

it, first, that it was incurred and, secondly, that, in law,

the second respondent is entitled to recover it.

The appeals are allowed. The judgment and order under

appeal is set aside as also the order of sale dated 15th

September, 1989 in favour of the second respondent. The

Official Liquidator shall forthwith recover possession, from

whoever is in possession, of the assets and properties

covered by the said order of sale. The same shall be resold

after a fresh valuation report thereof has been obtained, a

reserve bid fixed and due advertisements published. The

second respondent shall be repaid the purchase price of Rs.2

crores by the Official Liquidator subsequent to recovery of

possession as aforestated.

The lease of the property, which was the subject

matter of the sale, in favour of the Bengal Paper Mills

(1989) Co. Ltd., is set aside.

The second respondent shall pay to the Official

Liquidator the costs of the appeals before the Division

Bench of the High Court and of these appeals, quantified in

the sum of Rs.25000/-.