1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 10128 OF 2011

RAJIV KUMAR JINDAL AND OTHERS ….APPELLANT(S)

VERSUS

BCI STAFF COLONY RESIDENTIAL

WELFARE ASSOCIATION AND OTHERS ….RESPONDENT(S)

WITH

CIVIL APPEAL NO(S). 10127 OF 2011

BCI STAFF COLONY , RESIDENTIAL

WELFARE ASSOCIATION , RAJPURA ….APPELLANT(S)

VERSUS

APPELLATE AUTHORITY FOR INDUSTRIAL

& FINANCIAL RECONSTRUCTION (AAIFR)

AND OTHERS ….RESPONDENT(S)

J U D G M E N T

2

Rastogi, J.

1. The instant appeals are directed against the judgment and order

dated 5

th February, 2010 passed by the Division Bench of the High

Court of Punjab and Haryana at Chandigarh, setting aside the

auction held pursuant to auction notice dated 24

th May, 2004 by

Industrial Development Bank of India (hereinafter referred to as

“IDBI” – Operating Agency).

2. The facts in brief culled out from the record are that M/s Bharat

Commerce & Industries Limited (hereinafter referred to as “BCI”) was

declared a sick company and for disposal of assets of BCI pursuant

to directions of Board for Industrial and Financial Reconstruction

(BIFR) under Section 20(4) of the Sick Industrial Companies (Special

Provisions) Act, 1985(hereinafter being referred to as the “Act 1985”)

through IDBI - the Operating Agency, initiated the process of inviting

offers in sealed cover for sale of assets of the captioned unit.

3. Pursuant to public notice dated 24

th May, 2004, offers were

invited for various blocks, calling upon the interested parties to

deposit earnest money of Rs.6 lakhs for Block IV and submit their

tenders in sealed cover within a period of 30 days from the date of

3

advertisement and for further information, the interested parties may

contact the office of Mr. P.M. Nair, DGM, IDBI, Mumbai, the office of

the Assets Sale Committee constituted by the BIFR and the agency

reserved the right to accept or reject any offer without assigning any

reason therefor. It is pertinent to note that the Operating Agency was

under obligation to evaluate the realizable value of the property from

the approved valuer and thereafter to notify the reserve price in the

auction notice in terms of Section 21(c) of the Act, 1985, and that

indeed was not indicated in the auction notice and the solitary bid

submitted by the appellants in Civil Appeal No. 10128 of 2011 of

Rs.2,84,00,000/- on 22

nd June, 2004 was accepted by the authority.

4. On being examined by the ASC although nothing came forward

as to why in the absence of a competitive bidding, the solitary bid of

the present appellants was processed, be that as it may, the bid of

the appellants in reference to Unit Block IV for the captioned assets

was accepted as it reveals from the communication dated 12

th

August, 2004 with a rider that the same shall be confirmed as per

the terms and conditions of ASC advised to all the bidders on 8

th

August, 2004 for which the bidder may be required to execute a

tripartite Memorandum of Understanding (MOU) with IDBI.

4

5. The record indicates that the appellants were asked to furnish

a bank guarantee for a bid value of Rs.2,84,00,000/- by 27

th August,

2004 for a period of one year and required to deposit payment in

instalments. The appellants from the day one were reluctant in

furnishing the bank guarantee of Rs.2,84,00,000/, however, shown

their alleged willingness to pay the value of the assets in terms of the

bid within a period of six months. But the fact is that the appellants

neither offered bank guarantee of Rs.2,84,00,000/- nor deposited a

penny after acceptance of the bid on approval of the ASC by

communication dated 12

th August, 2004.

6. The BIFR, pursuant to its order dated 24

th November, 2004

observed that since the sole bidder for Block IV (the appellants

herein) 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 concerned High Court.

7. The decision of BIFR dated 24

th November, 2004 was challenged

by the present appellants before the Appellate Authority for

Industrial & Financial Reconstruction (AAIFR). The AAIFR under its

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order dated 1

st April, 2005, while setting aside the order of the BIFR

dated 24

th November, 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.

8. That became the subject matter of challenge by filing of a writ

petition before the High Court of Punjab and Haryana at Chandigarh

at the instance of BCI Staff Colony, Residential Welfare Association

and its members under Article 226 of the Constitution.

9. The Division Bench of the High Court after revisiting the records

of the bidding process and the procedure adopted by the Operating

Agency arrived to a conclusion that the appellants have not made

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 also took note of the fact

that solitary bid was received by the ASC for the subject property and

it was less than the circle rate fixed by the Collector of the property

in question and while setting aside the order of the AAIFR dated 1

st

6

April, 2005, restored the order of the BIFR dated 24

th November, 2004

with a further direction that the money which was deposited by the

appellant, be returned with interest @ 8% (simple) from the date of

its deposit till the amount is refunded with liberty to sell the property,

if need be, as per the provisions of law under its judgment dated 5

th

February, 2010.

10. That became the subject matter of challenge in the instant

appeals on behalf of the appellants and this Court while issuing

notice under order dated 8

th July, 2010 directed the parties to

maintain the status-quo.

11. The original petitioners before the High Court had also

challenged the self-same judgment of the Division Bench of the High

Court in Civil Appeal No.10127 of 2011.

12. Mr. Jaideep Gupta, learned senior counsel appearing for the

appellants, submits that while the advertisement came to be

published by the IDBI (Operating Agency), the guidelines of ASC were

not appended thereto and it was not made known to the parties that

they are required to furnish a bank guarantee as a security to the bid

amount and calling upon the appellants at the stage of acceptance of

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the bid to act upon the guidelines and to furnish a bank guarantee

was not justified and this was considered by the AAIFR under its

order dated 1

st April, 2005 and which has not been appreciated by

the High Court in the right earnest.

13. Learned counsel further submits that the appellants had paid

the entire sale consideration on 3

rd June, 2005 and 7

th June, 2005

and pursuant thereto the tripartite Memorandum of Understanding

had been executed between the concerned parties on 18

th July, 2005

and this was not considered by the High Court while setting aside

the bid under the impugned judgment.

14. Learned counsel further submits that the High Court has

committed a manifest error and has failed to take into consideration

that once the auction sale is confirmed, the objections to the said

auction can only be entertained if there are material irregularities

and fraud. Furthermore, the process of auction sale would forever

remain incomplete because somebody may always come up after the

confirmation of the sale with an offer for higher value and that

conduct has always been deprecated by this Court in Valji Khimji

8

and Company v. Official Liquidator of Hindustan Nitro Product

(Gujarat) Limited and Others

1.

15. Learned counsel further submits that the appellants had

scrupulously adhered to the conditions of the ASC and were ready to

make payment of the entire sale consideration and till September,

2004, the appellants were never made aware that the bank guarantee

equivalent to the bid amount would have to be furnished and

immediately on their appeal being allowed by the AAIFR, the

appellants herein made over the bid amount of Rs.2,84,00,000/- on

3

rd June, 2005 and 7

th June, 2005 and hence there was no violation

of any terms and conditions of the sale of assets.

16. To buttress further, learned counsel submits that once the

auction sale stands approved, at least the employees who were

residing in the property in question and who had never participated

in the bidding process, have no locus to question the order passed by

the AAIFR confirming the auction bid under its order dated 1

st April,

2005 and the offer made by the respondent/original petitioner (BCI

Staff Colony) was of no substance and if such practice is being

1

(2008) 9 SCC 299

9

permitted, then such of the applicants who have not participated in

the bidding process would make an offer at a later stage, no auction

bid at any given point of time could be finalized and it will never fetch

the value of the asset and the transaction can never attain finality.

In support of his submissions, the counsel has placed reliance on the

judgment of this Court in National Highways Authority of India

v. Gwalior-Jhansi Expressway Limited Through Director

2

.

17. Learned senior counsel, Shri Ravi Prakash Mehrotra, appearing

for the appellants in Civil Appeal No.10127 of 2011 submits that the

auction bid of the appellants in Civil Appeal No.10128 of 2011 has

been rightly set aside by the Division Bench of the High Court but

they are aggrieved only where the Division Bench has directed that

the subject property be sold, if need be, as per the provisions of law.

18. Learned counsel submits that since the appellants have made

an offer of Rs.3 crores which was higher than the bid furnished by

the appellants in Civil Appeal No.10128 of 2011 and they being

residing for sufficiently long time over the property in question put to

auction, at least they seek an indulgence of this Court that their offer

2

(2018) 8 SCC 243

10

may be accepted and the authorities may be directed to execute the

sale certificate in their favour. Learned counsel has placed reliance

on the judgments of this Court in Navalkha and Sons v. Sri

Ramanya Das and Others

3 and Divya Manufacturing Company

(P) Ltd. Tirupati Woollen Mills Shramik Sangharsha Samity and

Another v. Union Bank of India and Others Officia l Liquidator

and Others

4.

19. Per contra, learned counsel for the intervenors, while

supporting the finding of the High Court, submits that the employees

of the company in liquidation have not participated in the

proceedings but their dues are still outstanding and which could not

have been made over in absence of the funds available with the

Official Liquidator and they being the sufferers for a long time, at

least while upholding the judgment of the Division Bench of the High

Court, the BIFR or the Official Liquidator may be called upon to

initiate a fresh bidding process to fetch the maximized value of the

property which may at least bring some solace to the employees

3

(1969) 3 SCC 537

4

(2000) 6 SCC 69

11

whose dues are outstanding for a long time and they have a superior

claim over the financial creditors of the company in liquidation.

20. The final arguments were concluded on 19

th April, 2023 and we

called upon the appellants, if they are interested, may give their

revised offer of the subject property. Both the appellants have

submitted their revised offer. Appellants in Civil Appeal No. 10128

of 2011 have tendered their offer of Rs.23,09,00,000/-. At the same

time, the appellants in Civil Appeal No. 10127 of 2011 have given

their offer of Rs.14 crores since in the absence of valuation of the

subject property from the approved valuer, it may not have been

possible to assess the fair value of the property.

21. We have heard learned counsel for the parties and with their

assistance perused the material on record.

22. The process was initiated by the Operating Agency (IDBI) to sell

the subject assets of the sick industrial company (BCI) in terms of

the order passed by the BIFR in exercise of its power under Section

20(4) of the Act, 1985. Pursuant thereto, the Operating Agency was

under an obligation to obtain the valuation report of the subject

property and after due assessment has to arrive at the reserve price

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for the sale of the property in terms of Section 21(c) of the Act, 1985

and thereafter has to proceed with a procedure known to law while

adopting a method for 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.

Sections 18(2)(k) and 21(c) are relevant for the purpose and are

reproduced hereinbelow:

“18. Preparation and sanction of Schemes. -

(1) xxx xxx xxx

(2) The scheme referred to in sub-section (1) may provide for any one

or more of the following, namely:-

(a) to (j) xxx xxx xxx

(k) method of sale of the assets of the industrial undertaking

of the sick industrial company such as by public auction or

by inviting tenders or in any other manner as may be specified

and for the manner of publicity therefor;”

“21. Operating agency to prepare complete inventory, etc. -

Where

for the proper discharge of the functions of the Board under

this Act the circumstances so require, the Board may, through any

operating agency, cause to be prepared-

(a) to (b) xxx xxx xxx

(c) a valuation report in respect of the shares and assets in

order to arrive at the reserve price for the sale of a part or

whole of the industrial undertaking of the company or for

fixation of the lease rent or share exchange ratio;”

23. Indisputedly, in the instant case, it has not been placed on

record if there was any valuation report assessed by the Operating

Agency from the approved valuer of the subject property and, at the

13

same time, the reserve price of the subject property was never

disclosed/indicated in the first place when the public notice came to

be notified on 24

th May, 2004 inviting offers from the interested

parties for Block IV. Thus, the very procedure adopted by the

Operating Agency appears to be defective at its very inception.

24. The object of the auction is to secure optimum realizable value

of the property by giving 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 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. On the other hand,

auction is the 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.

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25. The purpose of auction (open or close format) is to get the most

remunerative price and giving opportunity to the intending bidders

to participate and fetch higher realizable value of the property. If that

path is cut down or closed, the possibility of fraud or to secure

inadequate price or underbidding would loom large. In the given

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.

26. The object of auction has been considered by this Court in

Lakshmanasami Gounder v. C.I.T., Selvamani and Others

5 as

under:-

“…….The object of the sale is to secure the maximum price

and to avoid arbitrariness in the procedure adopted before

sale and to prevent underhand dealings in effecting sale

and purchase of the debtor’s property. Public auction is

one of the modes of sale intending to get highest

competitive price for the property. Public auction also

ensures fairness in actions of the public authorities or the

sale officers who should act fairly and objectively. Their

action should be legitimate. Their dealing should be free

from suspicion. Nothing should be suggestive of bias,

favouritism, nepotism or beset with suspicious features of

underbidding detrimental to the legitimate interest of the

debtor…”

5

(1992) 1 SCC 91

15

27. Before we proceed to consider the submissions made, it will be

apposite to summarize the admitted facts for better appreciation of

the submissions made.

(i). M/s Bharat Commerce & Industries Limited (BCI) was

established in 1964. However, it later became sick and by an order

dated 22

nd January, 2004 passed by the BIFR in case HP/2000, IDBI

was directed to become the Operating Agency to take up sale of assets

of BCI under Section 20(4) of SICA in terms of ASC guidelines.

(ii). Advertisement came to be published by IDBI (Operating Agency)

for sale of land of Block IV Staff Colony of Rajpura unit of BCI

admeasuring 26,750 sq. meters (approx. 5 acres) on 24

th May, 2004.

(iii). The appellant (Rajiv Kumar Jindal and others) was the solitary

bidder who submitted their bid for purchase of Block IV for

Rs.2,84,00,000/- on 22

nd June, 2004 and paid earnest money of Rs.6

lakhs.

(iv). The Operating Agency accepted the bid by letter dated 12

th

August, 2004, subject to the condition that the successful bidder has

to comply with the terms and conditions of the ASC, as advised to all

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the bidders on 8

th August, 2004. The extract of the acceptance of the

bid by the Appellants is reproduced hereunder:

“The above sale is on the terms and conditions of Asset Sale

Committee (ASC) advised to all the bidders by the ASC on August

08, 2004 for which you may be required to execute a tripartite

Memorandum of Understanding (MOU) with IDBI, Selling Agency &

BCIL, the draft of which would be sent to you shortly.”

28. It will be apposite at this stage to refer to the relevant terms and

conditions of the ASC which the bidder was supposed to comply and

the same are referred hereunder:

“Procedure and Guidelines to be followed by Asset Sale

Committee (ASC) appointed by BIFR for sale of assets of sick

companies –

(a) to (g) xxx xxx xxx

(h) Where a bid has been finally accepted the purchaser shall be

required to pay the balance of the purchase consideration in

two installments of 50% and 48% of the total selling price,

payable respectively, before the end of 45 days and 90 days

from the date on which intimation regarding the final

acceptance of t.he bid is dispatched to him by registered Post

(A.D.)/Special Post at his notified address.

(i) The successful purchaser shall within 15 days of the receipt

of intimation regarding the acceptance of his bid, furnish a

bank guarantee, valid for one year, as many as considered

satisfactory by the OA/MA, to secure full and timely payment

of consideration for the assets purchased.”

(j) to (r) xxx xxx xxx.”

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29. Indisputedly, the appellants (auction bidder) have 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.

30. When the matter was placed before the BIFR, the Bench took

note of the fact that the appellants, viz., M/s Rajiv Kumar Jindal and

others, were the sole bidder for Block IV of 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 have not been complied with, the bid of the

appellants was not confirmed but on appeal being preferred by the

appellants, the AAIFR has not taken 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 is always

to be taken care of to secure the optimized value of the property.

31. The appellants have shown their willingness to deposit the bid

amount in two instalments on 20

th September, 2004 and 10

th

November, 2004 but the fact is that even before the order came to be

passed by the BIFR, neither the bank guarantee was furnished nor a

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single instalment was deposited by the appellants and here, in our

view, the AAIFR has went wrong in setting aside the Order of BIFR.

32. The Division Bench of the High Court had revisited the entire

proceedings and taking into consideration the fact that there was no

competitive bidding which is a sine qua non for public auction and

guidelines of the ASC have not been complied with, accordingly set

aside the order of the AAIFR with a further direction to initiate the

process afresh in accordance with law and we do not find any error

in the view expressed by the High Court which may call for our

interference.

33. The submission of Mr. Gupta, learned senior counsel, that the

appellants in Civil Appeal No.10127 of 2011 have not participated in

the bidding process and made an offer at the later stage, have no

locus standi to challenge the order of the AAIFR confirming the bid

of the appellants. In the facts and circumstances of the case, it may

not be of any assistance for the reason that the appellants in Civil

Appeal No.10127 of 2011 (BCI Staff Colony , Residential Welfare

Association and Others) indeed were not the bidders and have not

tendered any sealed bid, but at the same time, they have made an

19

offer at a later stage and directly interested in the subject property in

question as they are residing there for sufficiently long time, and not

the strangers to the proceedings, being the person aggrieved their

right to question invoking the jurisdiction of High Court under Article

226 of the Constitution cannot be ruled out.

34. That apart, the question of locus was never raised by the

appellants before the High Court and once the subject issue has been

looked into by the High Court on merits and we too are persuaded

that order of the AAIFR confirming the bid pursuant to its order

impugned dated 1

st April, 2005 is not legally sustainable, we do not

find any justification at this stage to non-suit the claim of the

appellants prayed for in Civil Appeal No.10127 of 2011.

35. Further submissions made by the learned counsel that the

conditions of the ASC were scrupulously adhered to and the entire

bid amount was deposited after the order came to be passed by the

AAIFR confirming the bid on 3

rd June, 2005 and 7

th June, 2005 and

Tripartite MOU was executed is of no substance for the reason that

the very procedure in the first instance initiated by the Operating

Agency was defective at its very inception and before initiation of the

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auction proceedings, neither the value of the property was assessed

through the approved valuer nor the reserve price was notified in the

auction notice dated 24

th May, 2004 and the solitary bid of the

appellant for Rs.2,84,00,000/- was accepted and confirmed by the

AAIFR without taking note of the fact that the appellant has failed to

comply with the guidelines laid down by the ASC indicating that

successful purchaser has to furnish a bank guarantee valid for a

period of one year within 15 days of intimation regarding acceptance

of the bid and the balance of the purchase consideration has to be

paid in two instalments of 50% and 48% of the total selling price

payable respectively before the end of 45 days and 90 days from the

date of intimation of final acceptance of the bid is dispatched at his

notified address which is the requirement in terms of clause (h) and

(i) of the procedure and guidelines laid down by the ASC and that

being a part of the auction notice, the appellant was under obligation

to comply with and despite opportunity the appellant has failed to

comply with both the twin conditions and, thus in the facts and

circumstance, the Division Bench of the High Court has rightly set

aside the order of AAIFR dated 1

st April, 2005.

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36. So far as the submission made by learned counsel for the

appellants in Civil Appeal No. 10127 of 2011 that the offer made by

the appellants was higher than the sealed bid is concerned, it has no

substance for the reason that the appellants have not participated in

the bidding process and it is not the case of the appellants that the

auction notice published on 24

th May, 2004 was not in their

knowledge. In our considered view, later offer in the facts and

circumstances of the case tendered by the appellants was of no legal

significance and rightly not acknowledged by the authority.

37. Before we conclude, we would like to observe that the money

deposited by the appellants in Civil Appeal No. 10128 of 2011 shall

be refunded in terms of the order of the High Court impugned dated

5

th February, 2010. At the same time, the official liquidator may take

all reasonable steps to fetch the optimum value of the property in

order to achieve the object of public auction.

38. Consequently, both the appeals are without substance and

accordingly dismissed. No costs.

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39. Pending applications, if any, shall stand disposed of.

………………………J.

(AJAY RASTOGI)

……………………….J.

(BELA M. TRIVEDI)

NEW DELHI;

APRIL 27, 2023.