Summary
IDBI, as operating agency under the Sick Industrial Companies (Special Provisions) Act, 1985, invited sealed offers for a block of a sick company's land without obtaining a valuation or notifying a reserve price, received a solitary bid, and accepted it; the bidder then neither furnished the bank guarantee nor paid the instalments required by the Asset Sale Committee guidelines. The Supreme Court upheld the High Court's decision setting aside the AAIFR's confirmation of that sale, holding the process defective from inception for want of valuation, reserve price and competitive bidding, and rejected both the bidder's appeal and the resident association's plea that its own later, higher offer be accepted.
Issues
- Whether a sale of a sick company's assets conducted by the operating agency without a valuation report and reserve price under Section 21(c) of the 1985 Act, and on a solitary bid, is sustainable.
- Whether the AAIFR could confirm the bid when the bidder had not furnished the bank guarantee or paid the instalments required by clauses (h) and (i) of the Asset Sale Committee guidelines, which formed part of the terms of sale.
- Whether residents of the staff colony who did not bid had locus to challenge the confirmation of sale under Article 226, and whether their later, higher offer could be accepted.
- Whether payment of the full bid amount after the AAIFR's order and execution of a tripartite MOU cured the defects.
Provisions considered
- Section 20(4), Sick Industrial Companies (Special Provisions) Act, 1985Source of the BIFR's direction to IDBI, as operating agency, to sell the assets of the sick company in terms of the Asset Sale Committee guidelines. (¶¶ 2, 22, 27)
- Section 21(c), Sick Industrial Companies (Special Provisions) Act, 1985Requires the operating agency to obtain a valuation report to arrive at the reserve price before sale; no valuation was placed on record and no reserve price was notified in the auction notice, making the procedure defective at inception. (¶¶ 3, 22, 23, 35)
- Section 18(2)(k), Sick Industrial Companies (Special Provisions) Act, 1985Prescribes that the scheme may provide the method of sale, by public auction, tenders or otherwise, and the manner of publicity; the object of such sale is to secure the optimum realisable value through competitive bidding. (¶¶ 22, 24, 25, 26)
- Article 226, Constitution of IndiaThe resident welfare association, though not a bidder, was directly interested in the property and a person aggrieved, so its writ petition challenging the AAIFR's confirmation was maintainable; the locus objection was also never raised before the High Court. (¶¶ 8, 33, 34)
Held
- Before selling a sick company's assets the operating agency must obtain a valuation from an approved valuer and notify the reserve price in the sale notice; a sale initiated without either, and on a solitary bid, is defective at its very inception. (¶¶ 3, 23, 35)
- The object of auction, open or sealed, is to secure the most remunerative price through competitive bidding and to avoid arbitrariness and underhand dealing; competitive bidding is a sine qua non of public auction, and where that path is closed the risk of fraud or inadequate price looms large. (¶¶ 24, 25, 26, 32)
- The Asset Sale Committee guidelines requiring a bank guarantee within 15 days of acceptance and payment of the balance in instalments within 45 and 90 days were part of the terms of sale; since the bidder complied with neither before the BIFR declined confirmation, the AAIFR erred in setting aside the BIFR's order, and later payment of the bid amount and execution of an MOU after the AAIFR's order could not cure the defect. (¶¶ 28, 29, 30, 31, 35)
- Long-term residents of the property, though not bidders, were persons aggrieved with standing under Article 226 to question the confirmation; but their later offer, made without participating in the bidding process of which they had knowledge, had no legal significance and could not be accepted. (¶¶ 33, 34, 36)
Result
Both appeals dismissed; High Court's judgment restoring the BIFR's refusal to confirm the sale upheld. The bidder's deposit to be refunded with 8% simple interest as directed by the High Court; the official liquidator to take all reasonable steps to fetch the optimum value of the property. No costs; pending applications disposed of.