SC unveils dark side of auction sales

The Supreme Court last week unveiled a "sad, sad and shocking" story of auction sale of a liquidated company in Gujarat, in which the official liquidator and bidders played unsavory roles. The price fixed at Rs 6.25 crore for 291 plots of the company fetched Rs 70 crore for 113 freehold plots alone; the others were not free for sale. The drastic change was due to the intervention of the court.

The judgment in the case, Manoj Naik & Associates vs Official Liquidator, noted the unconditional apology rendered by the liquidator of Vitta Mazda Ltd for issuing misleading statements. It also stated that a judge of the high court breached "judicial discipline" by passing orders at the request of the liquidator. The Supreme Court, narrating the sordid story of auctions, pointed out that when the Gujarat Industrial and Technical Consultancy Organisation Ltd estimated the price of the113 plots at Rs 66.15 lakh, the bids went up and the winner offered Rs 70 crore.

The court remarked: "There can be no speck of doubt that the properties of a company under liquidation when sold, there has to be a proper auction, a fair one. It must fetch the maximum price. It takes care of statutory dues, dues of workmen and creditors. It has its own public character. In any case, it cannot be allowed to be sold for a song."

Forest land for non-existent campus

The Supreme Court has dismissed the appeal of Raunaq Eductional Foundation, which was allotted 76 acres of forest land for an educational complex which was not built, with stinging remarks about "abuse of its position to its advantage and to the disadvantage of the public". The court stated that it has not been able to discern "why forestland was acquired, if such land was already vested in the government. There is nothing to show that the requisite permission was taken for converting forest land for non-forest purposes," the judgment said.

The land was acquired in 1974 with a specific deadline to build the complex. But it was not done. So the village panchayat wanted the land back. The Haryana government therefore took back the land in 1998, which was challenged by the Raunaq Foundation. The high court had dismissed its petition.

On appeal, the Supreme Court said that though the proclaimed objective of the educational complex was advancement of the poor, the conduct of the foundation was suspect. "The people of the village were deprived of the benefit of the common land due to false promise of the foundation," the judgment emphasised. It reiterated that "allocation of public land to a private entity requires fair, transparent and non-arbitrary exercise of power."

Changing goalposts in arbitration

The Supreme Court has stated that once consent has been given to appoint an arbitrator, it cannot be withdrawn pointing out the terms of the contract. In this case, Ashoka Tubewell & Engineering Corporation vs Union of India, a works contract was given to a firm by railways with a provision that any dispute will be decided by an arbitrator who will be a gazetted railway officer or none at all. When disputes arose, the railway did not appoint any arbitrator.

Therefore, the contracting firm moved the Calcutta High Court for appointment of an arbitrator under the Arbitration and Conciliation Act. The high court appointed a former judge as arbitrator with the consent of both parties. In the arbitration proceedings, the railway argued that the appointment of arbitrator was not valid in view of the above clause, but he rejected the objection and gave an award in favour of the firm. The railway moved the high court against the appointment of the arbitrator, which was rejected by a single judge bench.

But on appeal, the division bench set aside the award on the ground that the arbitrator was not appointed validly. The firm appealed to the Supreme Court, arguing that since it did not appoint an arbitrator, the firm must move a civil suit and not seek arbitration. The Supreme Court rejected the argument stating that since the consent had been given by railway, the award against it cannot be set aside on the ground that the arbitrator was not validly appointed.

Double whammy for cheque offender

A person who issues a cheque, which is dishonoured by the bank can be ordered to pay a fine under the Negotiable Instruments Act or compensation in addition, under the Criminal Procedure Code, the Delhi High Court has ruled in the case of Haryana Petrochemicals Ltd vs Indian Petrochemicals Ltd.

"The purpose of fine and compensation is the same; i.e. to assuage the grievance of the complainant," the high court said. The two companies were dealing in sale and purchase of chemicals. A few cheques issued by the Haryana firm bounced leading to complaints before the magistrate. He imposed fine of various amounts from Rs 5,000 to Rs 50 lakh depending upon the value of the cheques. The sessions judge on appeal enhanced the amounts as compensation, amounting in some cases to Rs 50 -70 lakh.

This was challenged by the Haryana firm in the high court. It argued, among other things, that a sentence of compensation could not be passed under the Negotiable Instruments Act which provide for fine. The provision for compensation is found in Section 357 of CrPC, which could not be applicable in cheque cases, it was argued. Rejecting the argument, the high court emphasised that an appellate court has the power to order compensation under the code. It said: "This power has a message - a measure of responding properly to the crime as also reconciling the victim with the offender."

Peanut compensation will not do

The National Consumer Commission last week dismissed a batch of 227 appeals moved by the Agricultural Insurance Co Ltd against village level agricultural cooperative societies in Rajkot, which had processed the cases of their members for agricultural loans under the 'comprehensive crop insurance' scheme.

There was a drought in Gujarat around 2000 and the groundnut crop suffered badly, leading to claims for compensation. However, the claims were substantially denied describing the crop failure as 'shortfall in yields' and several other deductions were made. The cooperatives moved the state consumer commission. It held that the deductions were not permissible and the claims amounting to Rs 33 lakh must be paid.