' FAQIR MUHAMMAD KHOKHAR J.---The Civil Appeal No,1540 of 2000 and C.P.L.A. No,124-L of 2004 involving common question of law and fact are directed against orders dated 22-9-2000 and 10- 11-2000 passed by a learned Company Judge of the Lahore High Court, Lahore, in C.O. No, 100 of 1998 and Civil Miscellaneous No,873-L of 2000.
2. The petitioner company namely Mohib Textile Mills limited was wound up by the learned Company Judge of the Lahore High Court, Lahore by order dated 7-10-1998 passed in C.O. No,98 of 1998, 103/1998, 123/1996, 125/1996 and 80/1997. The Civil Miscellaneous No,45-L/2000 moved by the official liquidators for permission to sell the assets of the company comprising three independent units was allowed by the High Court, by order dated 27-1-2000. The Joint official liquidators held auction of the assets of the petitioner-company and submitted their report No,5 on 3-4-2000 with recommendations for confirmation of auction of the assets of the petitioner-company on the basis of bids already received by them. The petitioners made objections thereto through C.M.No,308- L/2000 which were sustained by the leaned Company Judge by order dated 4-4-2000. The entire proceedings of auction were set aside with the direction to re-issue the proclamation inviting the offers from the bidders. The joint official liquidators through advertisement in the daily Dawn (English), Frontier Post (English) and Jang (Urdu) invited sealed bids for sale of assets of Units Nos .I, II and III of the petitioner-company. The joint official liquidators, after necessary process, submitted report No,8 dated 1-6-2000 before the learned Company Judge along with summary of the bids as required by section 329(2) of the Companies Ordinance, 1984. The petitioners again filed their objections through C.M. No,643 of 2000 to the report No,8. On 5-7-2000, the consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory, made an offer of Rs,2,500 million for purchase of the project with down payment of Rs,150 million. The High Court directed them to tender earnest money either in cash or bank draft positively on the next date of hearing.
The auctionpurchaser/respondent No,4 namely the Green House Spinning Mills Limited and Harrapa Textile Mills (Pvt.) Limited, a joint venture, who had offered a bid of Rs,1071.000 million for purchase of three units of the company were allowed to withdraw their offer and the earnest money. Similarly, Amjad Textile Mills were also allowed to withdraw their offer and the earnest money. The case was adjourned to 7-7-2000 on which date the auction purchaser, (the respondent No,4) reappeared before the High Court and stated that in case the offer submitted by the consortium of Rafique Cotton Industries etc., did not materialize, their original offer be accepted as they were still willing to buy the total project. The joint official liquidators also stated that the said auction-purchasers had not withdrawn their earnest money and the offer was still in the field.
However, the learned company Judge in his order dated 7-7-2000 took the view that the bid of the respondent No,4 could not be considered to be alive. The consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory was given one week's time to submit the earnest money. The auction-purchasers submitted C.M.No,643 of 2000 dated 13-7-2000 for confirmation of sale of the project. By order dated 22-7-2000, the High. Court observed that the offer by the auction-purchasers for the purchase of total project of the company had been raised to one billion and eight crores. They were allowed time till 13-9-2000 to negotiate with the leasing companies to finalize the matter concerning the leasing equipment. The sale of the entire project in favor of the auction-purchaser (the respondent No,4) for Rs,1081.000 million was confirmed/sanctioned by the learned Company Judge of the Lahore High Court, Lahore, by the impugned order dated 22-9- 2000.Civil Appeal No,1540/2000 is directed against the said order dated 22-9-2000.
3. Thereafter, the respondent No,4/auction-purchasers filed C.M. No,873-L of 2000 in the High Court stating therein that they had transferred the rights undet the sale in favor of .Hashir Textile Mills Limited, the respondent No,5 (in C.P.L.A. No,124-L of 2004). The respondent No,4 further requested that the sale be drawn and confirmed in favor of the said company along with delivery of possession of the project. The petitioners filed objections thereto. The learned Company Judge, by the impugned order dated 10-11-2000 transferred auction rights in favor of Hashir Textile Mills Limited. The petitioners have filed the Civil Petition No, 124-L of 2001 against order dated 10-11-2000.
4. Syed Najmul Hassan Kazmi, learned counsel for the petitioners argued that the learned Company Judge was not justified in passing the impugned order dated 22-9-2000 of confirmation of sale of the project in favor of respondent No,4 without first disposing of the objection of the ex- management of the petitioner-mills whereby serious irregularities and illegalities in the process of auction of the assets of the company were pointed out. The audit and valuation report of March 1997 by the independent Auditors R.H. And Company, Chartered Accountant, and also by the National Bank of Pakistan showing value of three units at 3.2 billion was overlooked. The project was sold to the respondent No,4 at a thrown away price of Rs,1081.000 million without any justification.
The auction of the units of the mills to the respondent No,4 suffered from same illegalities and defects for which the earlier auction had been set aside. It was submitted that wide publicity was not given by the joint official liquidators as directed by the High Court in its order dated 4-4-2000 as only one proclamation was published in the newspapers: The auction proceedings were concluded by the joint official liquidators with undue haste who did not make serious efforts to attract more buyers so as to fetch maximum sale price of the mills. Even the proposals made by the ex-management of the company, in addition to the objections were brushed aside by the High Court. For the purpose of auction of huge project of mills, there was no publicity of invitation of bids through television network, radio, Stock Exchange, Chambers of Commerce, A.P.T. M.A., Textile Magazine, Business Recorder, Pakistan and "Gulf Economist and other proper publications in Pakistan Gulf, U.S.A. And Far East. Even the higher offers made by the participants and the bidders were ignored. In addition to the three spinning units, there were 50 acres of land with a constructed area of approximately 25 lacs square feet. Maqbool Textile Mills had also given a higher bid of 2001 million rupees to purchase the mills but they were knocked out by the joint official liquidators on hyper technical ground that they had issued a cheque for Rs,36.2 million instead of Bank Draft/pay order The consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory, had also made an offer to buy the project for Rs,2500 millions who were granted only two days time to make payment of earnest money. The auction-purchasers, Green-House Spinning Mills Limited, were not even incorporated as a company at the time it had made offer to buy the units of the mills. Similar was the position of a newly born company viz. Hashir Textile Mills Limtid.
The objections of the ex-management against proposed transfer of Mohib Textile Mills Limited in favor of Hashir Textile Mills Limited were not disposed of by the learned Company Judge in a perfunctory manner. The learned counsel next contended that the learned Judge in Chambers, by orders dated 5-7-2000 and 7-7-2000, had treated the matter of withdrawal of bid of the respondent No,4, to be final. Thereafter, the High Court was not justified to confirm the sale of the mills in favor of respondent No,4 with a nominal increase of Rs,10.00 million to the original bid. The ex-management of the mills moved C.M.No,769 of 2000 stating before the High Court that an interested purchaser was ready and willing to offer bid for rupees two billion in terms of auction notice dated 20-4-2000 and to deposit the requisite money but the High Court proceeded to confirm the sale of the petitioner-company in favor of the respondent No,4, by the impugned order dated 22-9-2000. The learned counsel placed reliance on the case of Messrs Sarbaz Cement Ltd. v.
Bankers Equity Ltd. And others 1996 SCMR 88 in support of his contention that the High Court was required to exercise its discretion to confirm sale or otherwise judiciously having regard to the interest of the company and its creditors.
5. On the other hand Syed Ali Zafar, Advocate Supreme Court, the learned counsel for the respondents Nos. 4 and 5 submitted that Mohib Textile Mills Limited had liabilities of Rs,4095.00 million which were not re-paid. Therefore, the High Court passed an order dated 27-10-1998 for winding up the company. The ex-management of the company itself had filed C.O. No,80/1997 for its winding up. The shareholders of the mills including the Chief Executive Asif Saigol had committed embezzlement of worth crores of rupees which led to initiation of criminal proceedings and incarceration of Asif Saigol while other shareholders of the company had managed to leave the country. A wide publicity was given for the invitation of offers for the second auction of the mills through the advertisement in the daily Dawn dated 20-4-2000, daily Jang and Frontier Post. In addition, circulation by the, P.I.C.I.C. Amongst its creditors, advertisement on the internet and visits and inspections of the prospective buyers were also arranged. The respondent No,4 was the only eligible highest bidder who had offered a price of Rs,1071.000 millions for purchase of the mills.
During the auction proceedings, two parties, who had given bids for Units No,I and III of the mills withdrew their bids with permission of the learned Company Judge. Another participant of the original bid also withdrew the same. None of them made any fresh offer, at any time, to purchase the assets of the mills. On 5-7-2000, the consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory offered a bid of Rs,2500 million for the purchase,of the total project of the company with a down payment of Rs,150 million but without the earnest money. The said consortium was allowed to tender the earnest money in the Court either in cash or in the shape of bank draft on the next date of hearing but they failed to do so. Therefore, the respondent No,4 made an application on 13-7-2000 before the learned Judge in Chambers that it was still interested for purchasing the assets of the mills and its bid of Rs,1071.000 million be confirmed. As to the withdrawal of the offers the learned counsel submitted that it was on account of the fact that the National Accountability Bureau had also taken cognizance of the matter. The learned counsel pointed out that the respondents Nos.4 and 5 had already paid the sale price and that four thousand employees were working in the mills. It was next contended that the P.I.C.I.C. Etc. Were secured creditors whereas the Mohib Textile Mills Limited was only a borrower with rights of equity of redemption. All the creditors had given their consent to the confirmation of the sale by the High Court in favor of the respondent No,4. It was submitted that in the absence of any fraud or patent illegality, a sanctity was attached to the judicial sale by the High Court, as held in the case of Hudaybia Textile Mills Ltd. And others v. Allied Bank Ltd. Of Pakistan Ltd. And others PLD 1987 SC 512. It was lastly contended that offer of higher price by a person after confirmation of judicial sale would not be a valid ground to set aside the same. Reliance was placed on the cases of Messrs Ittehad Cargo Service v. Messrs Syed Tasneem Hussain Naqvi PLD 2001 SC 116, S.Sounderajan and others v.
Kaka Mahomed Ismail Saheb of Messrs Roshan and Co. AIR 1940 Madras 42 (DB), United Bank Limted v. Messrs A.Z. Hashmi (Pvt.) Ltd. 2000 CLC 1438 (D.B. Karachi) and Pakistan Industrial Credit and Investment Corporation Ltd. v. Shandin Limited 2001 CLC 1267 (Lahore).
6. Raja Muhammad Akram, Senior Advocate Supreme Court , learned counsel for the respondent No,1 candidly conceded that the auction of the mills in favor of the respondents Nos.4 and 5 had not been made in a transparent and fair manner keeping in view the much higher value of the assets of the company. The learned counsel further submitted that serious efforts were required to be made to fetch maximum price of the assets in the interest of creditors and the mills and that a big project such as the petitioner-company was disposed of at a thrown away price in favor of the respondents Nos. 4 and 5 after they had withdrawn their offer.
7. We have heard the learned counsel for the' parties at length and have also gone through the available record. We find that the Chief Executive of the petitioner-company was behind the bars on account of criminal proceedings initiated by the National Accountability Bureau. It appears that the other share-holders/Directors of the company had either gone into hide or had left the country.
There was no one else who could safeguard their interests effectively in the matter of sale of assets of the petitioner-Company through auction. In such a situation, the joint official liquidators were required to exercise due diligence and to take utmost care for ensuring fair and transparent sale of the mills. The joint official liquidators did not fix any reserve price keeping in view the value of the assets to be sold.
8. On 5-7-2000, the respondent No,4 was allowed by the High Court to withdraw its offer along with the earned money. On 7-7-2000, the respondent No,4 reappeared before the High Court for acceptance of its earlier offer of Rs,1071.000 million in case the offer submitted by the consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory, did not materialize.
However, the learned Company Judge made it clear that the bid could not be considered to be alive. Thereafter., there were no valid reasons or exceptional circumstances for the revival and acceptance of the offer of the respondent No,4 with a nominal increase of 10 million rupees and to confirm the sale. In the present case, the matter of withdrawal of bid by the respondent No,4 had become a past and closed transaction.
9. The consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory, on 5-7-2000 had made an offer of Rs,25,00 million for the purchase of total project of the company with a down payment of Rs,150 million. The said consortium was directed by the High Court to tender the earnest money in the Court on the next date of hearing. The High Court fixed the case for hearing on 7-7-2000. Thus reasonable time was not given to the said consortium to tender the earnest money.
10. In our view, the joint official liquidators did not carry out the order dated 4-4-2000 by the High Court in its letter and spirit for conducting the auction of the petitioner-Company. The available record does not show that any independent value of high repute and integrity with necessary expertise in the relevant field was appointed to carry out the valuation of assets of the mills before putting the same to auction. The mere publication on one occasion in two English newspapers and one Urdu daily newspaper was not sufficient to ensure the widest possible participation of the prospective bidders. The project to be sold was not a small entity. Therefore, the advertisement was also to be placed in newspapers with an international circulation. The desirability of circulating the invitation through Stock Exchange was also to be considered. The publication in the newspapers of national circulation on at least two occasions with not less than seven days interval might have attracted more participants for the bidding.
11. We have no doubt in our mind that sanctity to judicial sale of property is to be maintained as far as possible as laid down in the case of Hudabia Textile Mills Ltd. (supra). However, the Courts have also a duty to ensure that such sales should be seen to have been made in the most fair, transparent, judicious manner and above any suspicion so that the interest of all the stake-holders are properly safeguarded. We cannot ascertain the genuineness or otherwise of the offer of the consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory. But the fact remains that the said consortium had offered a bid of Rs,2500 million for purchase of assets with a down payment of Rs,150 million. Even some other bidder had offered the bids for the purchase of three units separately which came to be higher than that of the respondent No,4.
Maqbool Cotton Factory had also offered a bid of Rs,2001 millions. In the case of Messrs Sarbaz Cement Ltd. Through Manager (supra) this Court made the following observations:-- "The official liquidator is vested with power under section 333(1)(0 of the Companies Ordinance "to sell the movable and immovable property and things in action of the company by public auction or, private contract, with power to transfer the whole whereof to any person or company or to sell the same in parcels" under the said section, the Court had been vested with complete discretion to sanction the sale or not. Such discretion must be exercised judiciously having regard to the interest of the company and its creditors. In the said case the reports of the creditors showed that the assets had been approximately valued at Rs,290.00 million. Evidently the offer of Rs,120.30 million was much lower and therefore, keeping in view the total liability of the company and the interest of the creditors, the same was rejected by the company Judge."
' Moreover, the objections taken by the petitioners against the confirmation of sale in favor of respondent No,4 and its subsequent transfer of the bid rights in favor of respondent No,5 were not attended to in their proper perspective. The proceedings of re-auction of the assets of the company by the joint official liquidators suffered from the same defects and infirmities as were noticed by the High Court in respect of earlier auction of the petitioner-Company. The impugned orders dated 22-9-2000 and 10-11-2000 passed by the learned Company Judge of the High Court are not sustainable at law.
12. For the foregoing reasons, Civil Appeal No,1540 of 2001 and Civil Petition No, 124-L of 2004 by converting it into appeal, are allowed. Consequently, the impugned orders dated 22-9-2000 and dated 10-11-2000, ,are set aside and the case is remitted to the Lahore High Court, Lahore for a re- sale of the assets of the petitioner-Company in accordance with law, as expeditiously as possible.
The learned Company Judge shall be at liberty to make such arrangements and to take such measures for the management and administration etc. Of the mills during the interregnum as it may consider appropriate in the best interest of the company and the creditors. No order as to costs.
(Sd.)
FAQIR MUHAMMD KHOKHR, J ' MIAN MUHAMMAD AJMAL, J.---I have had the advantage of going through the judgment proposed by my learned brother Mr. Justice Faqir Muhammad Khokhar, J. And regret to say that for reasons to follow I am unable to agree with the conclusions drawn by my learned brother and in consequence thereto acceptance of both the appeals.
2. The facts of the case need not be recapitulated. Suffice it to say for the disposal of these two matters that Mohib Textile Mills Limited was wound up by the learned Company Judge of the Lahore High Court on the request of management of the Company by order dated 7-10-1998. On the application of the Official Liquidators permission was granted to sell the assets of the Company comprising of three Units. On the report of the Official Liquidators for confirmation of the sale the petitioners raised objections which were sustained and the said auction set aside vide order dated 4-4-2000. However, in the subsequent auction which was held after vide publicity, the highest bid of respondent No,4 of the Rupees One billion eight crore and one lac (Rs,1081 million), which was consented to by the two major creditors, was confirmed by the learned Company Judge through order dated 22-9-2000 against which Civil Appeal No,1540/2000 is directed. Respondent No,4 through Miscellaneous Application made in the High Court informed that they had transferred the rights under the sale in favor of Hashir Textile Mills/respondent No,5 in CP 124-L/2001 and requested that the sale be drawn and confirmed in favor of the said Company along with delivery of possession of the Mills. The petitioners filed objections and the learned Company Judge through order dated 10-11-2000 transferred rights under the sale in favor of Hashir Textile Mills. Civil Petition No,124-L./2001 is directed against the said order.
3. Since the judgment proposed by my learned brother centres around the point that due diligence have not been shown to obtain the highest price of the assets and in the that regard reference was made to an offer made by consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory of Rs,2500 million and another offer made by Maqbool Textile Mills of an amount of Rs,2001 million.
4. As regards offer made by the consortium of Rafique Cotton Industries etc. Of Rs,2500 million for the purchase of the whole project, it is borne out from the record that this party appeared on the scene through Mian Nisar Ahmad, Advocate, during the pendency of the question of confirmation or otherwise of the auction in favor of the respondent, who offered the said amount. Proceedings in the case before the High Court would show that on 5-7-2000 when this offer was made, it was observed that it was not accompanied by earnest money and the learned counsel was given time to arrange the earnest money who undertook that the same would be tendered in cash or through bank draft on the next date of hearing and until such tender was made, he may not be allowed to be heard in support of the application. Order was accordingly made. The next date fixed in the case was 7-7-2000 on which date the Court observed that consortium of Rafique Cotton Industries etc. Failed to deposit the earnest money as undertaken by Mian Nisar Ahmad, Advocate who requested for grant of further week's time to arrange the earnest money which was allowed the case was adjourned. As has been observed by the learned Company Judge in the impugned order dated 22-9-2000 Mian Nisar Ahmad, Advocate appeared on the next date of hearing and apologised and bid ended in fiasco.
5. As far offer of an amount of Rs,2001 million made by Maqbool Textile Mills, it may be mentioned that the said offer was not in accordance with the terms and conditions of the auction published by the learned Company Judge as the offer made by this Company contained different terms and conditions and a period of 10 years was asked for payment of the said amount and on its desire earnest money was returned to it.
6. In view of these attending circumstances, the discretion to interfere with the sale confirmed in favor of the respondent on the assumption that the consortium of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory had offered an amount of Rs,2500 million and a short time was given to the said consortium for submission of the earnest money and that the offer of Maqbool Cotton Factory was rejected by the Official Liquidators merely on the ground of submission of cheque instead of bank draft for earnest money, could not be exercised. Merely because these two parties had offered huge amounts for the purchase of the assets without there being any intention of purchase as no bona fide efforts were made on their part to deposit the earnest money, there was no ground to assume that the assets of the Company were of value greater than the amount offered by the successful bidder. On behalf of the consortium, of Rafique Cotton Industries, Maqbool Cotton Factory and Umar Cotton Factory, Mian Nisar Ahmed, Advocate himself requested for one week's time to tender earnest money which was granted, therefore, -it could neither be argued nor maintained or held that the time granted to them was short on account of which they could not arrange money.
7. On 22-9-2000 when the highest bid of respondent No,4 was taken up for confirmation another application was filed by ex-management through Mr. Iftikhar-ud-Din Riaz, Advocate alleging that the ex-management had a buyer who was ready to offer an amount of Rs,2 billion in terms of auction notice dated 20-4-2000. The learned Company Judge noticed in the impugned order dated 22-9-2000 that a similar offer was previously made by consortium through Mian Nisar Ahmad, Advocate which ended in fiasco. In the present application no particulars such as name or address of the alleged buyers were disclosed and mere assertion was made that ex-management had a buyer who could offer that much amount. Such an application with these vague assertion did not warrant serious consideration in judicial proceedings and if the same was rejected by the Company Judge, in my view no illegality was committed, as such, this fact cannot be taken into consideration for interference with the order of confirmation of sale.
8. The plea that the Chief Executive of ex-management and office-bearers of the Company were behind the bars on account of a case registered against them with the NAB for which reason they were either hiding or had fled away from the country and could not look after their interests effectively and properly, it may be mentioned that no such argument was raised before the learned Company Judge. I do not find myself in agreement with my learned brother on these points, for, no such plea was raised by the ex-management either before the High Court or this Court that they were hindered or prevented from looking after their interests effectively on that account. Secondly, the registration of a criminal case against any party in a civil litigation and arrest of such person in that case would not in any manner adversely affect the civil proceedings pending before the Court, for, such person could defend himself according to. Law through his learned counsel. It may also be observed here as is borne out from the record that Mr. Iftikhar-ud- Din Riaz had been appearing before the High Court in the proceedings throughout to look after the interests of the ex-management as their counsel, therefore, it cannot be said that they were prevented from looking after their interests properly. Moreover fugitive from law and absconder could not be given premium over his illegal act of abscondence in civil proceedings as it would not be proper to lay down a bad proposition of law by giving them the benefit of such an illegal act. It may also be observed that during pendency of the cases before this Court an application (C.M.A.
No,1626 of 2000) was made by Maqbool Cotton Mills through Mr. Ihsanul Haq Chaudhary, Advocate Supreme Court whereby an offer of an amount of Rs,200 million was made. This Court passed an order on the said application on 22-1-2001 directing the said applicant to deposit an amount of Rs,1 billion within six weeks to establish its bona fides that it was really interested in,the purchase of the assets and it was also ordered that in case of failure to deposit the said amount, the applicant would be burdened with heavy costs. It was further directed that a joint statement be prepared about the assets of the Company including tangible and non-tangible by M/s. A.F. Fergusan & Company; Chartered Accountants. On the next date of hearing i,e, 15-5-2001, Mr. Ihsanul Haq Chaudhry, Advocate informed the Court that the applicant had not complied with the order as it did not deposit the said amount of Rs,1 billion. The application was, therefore, dismissed with costs of Rs,50,000.
9. In the light of these facts the correctness of which is established on the record and was also not controverted by any of the learned counsel appearing for the parties, the argument of Mr. Ali Zafar learned counsel for respondent No, 4 that these parties were actually brought by the ex- management to appear before the Court and to make offers of huge amounts so that question of auction, sale and confirmation of the sale of the assets of the company under liquidation may be delayed as far as possible, has a considerable force and also establishes that these offers were not made in good faith but were motivated by a desire of the ex-management to delay the matter.
10. As regards publicity before holding the auction, it may be mentioned that in all the newspapers of wide publications the advertisement was made. Mr. Ali Zafar, learned counsel for respondent No,4 pointed out that PICIC had been making advertisement six months before the auction on internet about the assets of the Company giving full particulars of each and every item throughout the world, the correctness of which was not controverted. Merely because in the opinion of any of the parties publication through other modes in addition thereto should also have been made, did not in any manner affect adversely the legality of the proceedings taken in pursuance of the publication already made. The requirements of wide publicity as ordered by the learned Company Judge were adequately met and the same were considered to be sufficient publication by the learned Judge himself in his discretion when it proceeded to auction the property there under and the said discretion has not been shown to have suffered from any illegality, therefore, according to the principles laid down by the superior Courts it should have been upheld and could not be interfered with merely because on the ground of so-called propriety, of publication through other modes should also have been adhered to.
11. Coming to the question of withdrawal of the offer by respond it No,4, the original bidder and the offer made by the consortium through Mian Nisar Ahmad, Advocate of Rs,2500 million on 5-7-2000 and subsequent order dated 7-7-2000 whereby it was held that the said bid could not be said to be alive or could be considered. It was brought to our notice that the withdrawal of offer was conditional due to intervention of NAB and on the acceptance of offer of Rs,2500 million Since it was a huge amount and the said auction purchaser could not match with the same, therefore, the said statement was made on 5-7-2000. The said purchaser did not withdraw the earnest money already deposited. On 7-7-2000 it was brought to the notice of the learned Company Judge that the said withdrawal was due to offer of the huge amount by the consortium and should be considered as the consortium failed to deposit the earnest money. Since at that time Mian Nisar Ahmed, learned counsel for the consortium had not withdrawn the said offer by the consortium and got an adjournment of a week for payment of the earnest money, therefore, the observation of the learned Company Judge made on 7-7-2000 that the said withdrawal on that date still held the field. However, when the said consortium did not come up and deposit .The earnest money and, in fact, expressed its unwillingness through their learned counsel and it ended in fiasco, the learned Company Judge took up the mater of offer of the respondent because at that time the condition of the highest offer of the said consortium had been removed, as such, on the consideration of overall circumstances and orders dated 5-7-2000, 7-7-2000 and 22-9-2000, the learned Company Judge was legally justified in reviving and taking up the matter of acceptance or otherwise of the said bid being the highest one and such matter could not be legally held to have been closed for ever as the sale of assets of liquidated Company and proceedings in that direction is a continuing process.
Even the consortium and Maqbool Textile Mills on this principle of continuity of process were allowed to contest and make offers during pendency of the, proceedings though they did not previously come forward and submit their bids within the time fixed in the publication.
12. Coming to the question of evaluation of the assets of the Company and the argument that the evaluation made by three independent Companies of the assets of Mills was to the tune of Rs,3 billion, had not been considered, it may be mentioned that the report of the other Company which originally evaluated the assets was not in agreement with the opinion of these companies. To set the controversy at rest as observed above, this Court appointed M/s. A.F. Ferguson & Company, Chartered Accountants which is well known and reputed one for evaluating the assets. The said Company submitted a voluminous report on each and every item of the assets. There is nothing on record that any of the parties in particular the petitioners raised any objection about the correctness of the said report, therefore, no notice can be taken much less considered for making basis for interference with the concluded transaction of sale in favor of the highest bidder in this case.
13. As to the question whether the newly established Company Hashir Textile was legally competent to transact business, this question has adequately been dealt with in detail by the learned Company Judge through order dated 10-11-2000, after considering the law on the point and the documents placed on the record it was held that the said Company under the law was a legal entity and could legally transact business. The said order is perfectly in accordance with law. The transfer of sale rights to this Company was therefore, valid. For this reason no interference is called for, therefore, Civil Petition No,124-L/2001 has no force as the final document of transfer has also been executed in its favor.
14. Neither the consortium nor Maqbool Cotton Mills Limited pursued the matter any further in respect of their alleged offers of huge amount, therefore in my 'view no argument could be raised by the petitioners on the basis of offers made by them to question the correctness or adequacy of the amount for which the sale was made. Since it was a matter of exercise of discretion, in order to do complete justice which according to law was required to be exercised judiciously keeping in view all the circumstances on record. It is a matter of record that this factory was a sick unit, the ex-management admitted through liquidation petition that it was unable to pay huge debts. The ex-management was also charged with serious allegations of corruption etc. And involved in NAB cases. In the advertisement made it was one of the condition, that the purchaser should operate this factory rather than to close the same or to sell the parts of the machinery. It was with view to revive the sick unit and to provide employment to the persons of the area in'which the mill was situated. It was on account of this condition that it was necessary that all the three Units should have been sold together so that the purchaser/purchasers could operate the same effectively. The respondent had in letter and spirit abide by the said terms and conditions and operated the mills which has provided employment to thousands of people working there. Throughout all this period the machinery of the mill and its parts were required to be replaced and changed according to the needs of the Mills. At present the original machinery and the parts have substantially been replaced by the purchaser. It may also be noticed that a serious objection was raised at all the relevant times that the possession of the mill should be delivered forthwith so that the theft of the assets of the mills should be prevented. It may be noticed that as against the inventory, parts of the machinery were reported to be missing. In spite of this the purchaser had paid the entire price and the mill is being operated by it. At this stage keeping in view all the above circumstances it is not a fit case to interfere with the impugned orders.
15. It may be pointed out that Raja Muhammad Akram, learned counsel for the National Bank of Pakistan appeared before the learned Company Judge of the Lahore High Court on 22-9-2000 and placed on record written- consent of the said Bank not objecting rather agreeing in favor of confirmation of the highest bid, therefore, learned counsel had no legal justification to turn around to take different stand. The order of confirmation of the auction in favor of the respondents is consent order as far as National Bank is concerned.
' For the foregoing reasons, the impugned order of the Company Judge is proper and reasonable, as such, it warrants no interference. Consequently, both the Civil Appeal and the Civil Petition are dismissed.
(Sd.)
' MIAN MUHAMMAD AJMAL, J ' SARDAR MUHAMMAD RAZA KHAN, J.---Mohib Textile Mills Limited located in Muzaffargarh with Head Office at 6-F.B. Awami Complex, Usman Block New Garden Town, Lahore was wound up by the learned Company Bench of the Lahore High Court vide order dated 7-10-1998 passed in five different petitions filed by the creditors. First auction proceedings of its three independent units were completed on 3-4-2000 but while sustaining the objections, the auction was set aside on 4- 4-2000. Certain directions were issued for compliance during the second auction, which in turn, was completed through report No,8 dated 1-6-2000 of the Joint Official Liquidators.
2. The highest bid was offered to the tune of Rs,1071.00 million by Green House Spinning Mills Limited and Harrappa Textile Mills (Pvt) Limited, a joint venture. After various interruptions and higher offers from different quarters, the second auction was confirmed by the learned Company Bench on 22- 9-2000 but now against a sum of Rs,1081.00 million in favor of Green House Spinning Mills (respondent No,4), for, during negotiations after auction proceedings, the amount was enhanced by the alleged highest bidder. Such confirmation is challenged through Civil Appeal No,1540 of 2000.
3. Thereafter, the auction purchaser applied that they had transferred the aforesaid rights -in favor of Hashir Textile Mills Limited (respondent No,5) and that the sale be now confirmed in favor of the said company and the possession be also delivered accordingly. This was objected to by Mohib Textile Mill but vide order dated 10-11-2000 the auction rights were transferred in favor of Hashir Textile Mills Limited and hence Civil Petition No,124-L of 2001, arising in the same background, both the matters are taken up together.
4. I had the opportunity of listening to the learned arguments of Mr. Najamul Hassan Kazmi, Syed Ali Zafar and Raja Muhammad Akram, learned counsel for the parties, at length. I also had the opportunity of going through the learned discourse of my brother Judges, Mr. Justice Mian Muhammad Ajaml and Mr. Justice Faqir Muhammad Khokhar.
5. The main point that falls for determination is as to whether the impugned auction in favor of respondent No,4 and thereafter its transfer in favor of respondent No,5 had been done in a fair and transparent manner. Whether serious efforts had been made by the auctioneer or by the Court to fetch maximum price of the assets, keeping in view the larger interest of creditors as well as the company under liquidation.
6. Before those arguments on merits could be commenced, Syed Ali Zafar turned counsel for the respondent No,4 raised a preliminary objection that no question, to be determined by the Referee Judge, has been formulated in the instant case by the learned dissenting Judges. It may be recalled that though no such question has been formulated yet I had so done vide order dated 25- 11-2004 with due notice to the learned counsel on either side. Formulations are as follows:--
(a) What is the legal status of auction proceedings finalized on the spot?
(b) What are the legal repercussions of the withdrawal of bid by respondent No,4 which, too, was subsequently withdrawn?
(c) Any other point connected therewith or ancillary thereto.
7. The above objection is countered in the light of Mubarak Ali Khan's case (PLD 1982 SC '315) wherein this Court had held that clause (26) of Letters Patent in terms does not provide for any form stating point of difference or for making reference to one or more Judges and further that point or points of difference can well be found out by Referee Judge or Judges upon perusing judgments of dissenting Judges and above all, that final decision of case rests on opinion of all Judges hearing the case. In my view, while following the above verdict, the objection is not very material.
8. Learned counsel for the appellant, in order to describe the magnitude of Mohib. Textile Mills vis- a-vis the price fetched, furnished the background of the company. It was incorporated in 1971 with initial installation of 25,080 spindles which was operated by the original promoters till 1979, wherefrom, the present management purchased the rights and liabilities. That during first four years the present management discharged all the outstanding liabilities in full. In 1983-84 a credit for extension and modernization was obtained, payable in eight years but the 'same was paid three years ahead of schedule while the company grew over four times with installed capacity of 114000 spindles. Its employees were 3000 in number and its sales boomed to Rupees 6.656 billion in the year 1992 to 1997. The taxes and duties paid to national exchequer were 24.6315 million and it ranked among 100 leading Companies of Pakistan in the index of Karachi Stock Exchange.
9. The crises developed due to the attitude of financial institutions. First among them was City Bank who made commitment to fund international equity flotation of company stock but failed to honour its commitment to pay U.S $ 60 million which resulted in massive domestic liabilities. In the year 1995 the Textile Industry in general went into recession, seriously causing a fall in export exorbitant increase in sale tax from 2.4/kg to 11.0/kg in 1996 added to the sales tax liability. Despite arrangement for repayment, American Express Bank not only recalled a credit limit of rupees 278 million on 13-8-1997 but filed a suit and obtained attachment of pledged goods obstructing sale and export. The reputation of the company being adversely affected, the other banks also followed the course adopted by American Express Bank. Despite such crises of stoppage of funds, the company restored the operation to a capacity of 90% by April 1997 and paid rupees 100 million to creditors from November 1996.
10. The filing of suit by National Bank of Pakistan and getting a receiver appointed in June 1998 was another set back. The receiver took over the control and five winding up petitions including the one initiated by the management of Mohib Textile Mills, were filed. It was .a genuine confidence of management that the value of assets not being less than five billions would successfully discharge the liabilities, leaving residue for reimbursement among the shareholders. Adding fuel to the fire was a reference to National Accountability Bureau on charges of wilful default as a consequence whereof the Chief Executive of the Company Asif Saeed Saigol got arrested on 16-11-1999 and remained in Jail till the end of 2004. That the auction proceedings in dispute were held during this period of detention, resultantly, the property was sold at a price entirely disproportionate to the actual value.
11. Coming to the events related to auction proceedings, the learned counsel contended that according to the Joint Official Liquidators report No,5 (page 125), the highest bid of rupees 3000 million of S.M. Masud and Company and rupees 2.001 billion of Umar Usman Textile Mills was ignored and that of rupees 1.01 billion was recommended. In the given conditions, the objections raised by the former management were accepted by the Court holding that the sale price was not acceptable and wider publicity needed to be given.
12. In the second auction vide report No,8 page 27 the bid offered by Green House and Harrappa Textile Mills joint venture was accepted for a sum of rupees 1.071 billion. As said earlier, due to negotiations after the sale, the bid was increased to 1.08 billion i,e,. 108 crores of rupees.
13. To this also the former management/ appellant raised serious objections that (i) wide publicity was not given (ii) no publication was made through APTMA, Stock Exchange, Gulf News Magazine and other commercials on Electronic Media (iii) the offer again was disproportionate to the actual value (iv) this report also suffered from exactly the same illegalities committed in earlier report No,5, disapproved by the Court (v) offer of highest bidder Maqbool Cotton Factory as 2001 million and Egerton Industries rupees 1800 million was ignored illegally (vi) even NAB Authorities addressed a letter to the official liquidator on 1-4-2000 informing that the value of assets was five billion and it should not be sold at throw-away price (vii) no reserve price was ever fixed before auction (viii)
Court never made any assessm ent of value of assets before inviting bids (ix) interest of shareholders not at all considered (x) the amount of liabilities and the interest of all the creditors was not taken into consideration.
14. Raja Muhammad Akram, learned counsel for National Bank of Pakistan fully supported the arguments of Mr. Kazmi and added that from the price fetched through the impugned auction even the loan of rupees 125 crores floated by the National Bank of Pakistan would not be satisfied from the fixed assets, much-less, that of the remaining 37/38 creditors. That the National Bank of Pakistan through Civil Miscellaneous No,2187 of 1999 had accepted the valuation to be Rupees 3.22 billion. That the Court did not discharge its responsibility to see under section 384 of the Companies Act, as to whether the loans are satisfied to the maximum and whether the one obtained through the impugned auction coincided with the value of the biggest Textile Mills in Asia.
That the setting aside of the auction would make no difference because all payments made by respondent No,4 are so made from the income of the Mills during the period involved. That a committee should be constituted of an experienced Textile-man, of a Senior Advocate and a reputed Chartered Accountant and further special audit should also be conducted from the date of possession or before and that there would be no need to close the Mills even for a single day.
That is how the investors' confidence will be restored.
15. Syed Ali Zafar, learned counsel for respondents Nos.4 & 5 vehemently contested the arguments of the learned opposite counsel and claimed that the approval of auction was made in a transparent manner by not contravening any provisions of law. That mere bald allegations and expectation for better price are no grounds for re-auction. That no creditors have challenged the sale and that the same is challenged by one shareholder whose role has remained destructive throughout rather than constructive. That the Courts should lean towards validity of auction rather than otherwise because the learned Company Judge has done something which was not prohibited.
16. The learned counsel further added that the setting aside of sale would result into shutting down of Mills. That 4000 workers would be rendered jobless, that the confidence of the investors would be shattered and complicated measures would need to be devised in settling the subsequent affairs and that this would violate the principal of lex non cogit ad impossiblia. That the Court is not obliged to hold the third -auction when the impugned one was consented to by all. That the publication of auction in three newspapers was sufficient under the law. That the reports of experts and the auditors were not authentic. That order dated 22-7-2000 was never challenged. That the plea that it was an interim order, is not maintainable because under section 10 of the Companies Ordinance any order could be challenged.
17. Further, that the role of the appellant was not bona fide and that his offers of rupees 250 crores and rupees 200 crores were without earnest money. That Maqbool Cotton offered rupees 250 crores in the first auction but earnest money was not paid. That again it came in the shape of consortium and made offer rupees 250 crores but subsequently disappeared. That in this Court they were directed to deposit rupees 100 crores (50%) but it was not complied with.
18. After having evaluated the above arguments of the learned counsel on the either side and having gone through the record, it is observed that a huge concern like the one in dispute, before auction, was not sufficiently advertised publicized. No reserve price was ever fixed by the Court meaning thLreby that it did not even attempt to determine the approximate value of company by judicial application of mind. The Pirson and Enziner Limited submitted their report which was confirmed by R.H. & Company Chartered Accountants (pages 142-147) holding the approximate value of the company- at ,Rs,3.2 billion. The National Bank also assessed the value at. Rs,4.00 billion through its Civil Miscellaneous No,2817 of 1999. All these references should have guided the Court, as different pieces of evidence, to fix the value of the company at some approximate level and to have fixed the same as reserve price. It was not so done.
19. There was a nominal difference between the price obtained in the first auction and then in the second auction. Similar objections were available in the second auction on the basis of which the first auction was set aside by accepting such objections as valid. The purpose of narrating the aforesaid events is only to bring home that while going through the process of auction and ultimately while accepting the same, the main, consideration before the Court was to abide by some procedure in routine and no primary consideration was about market value. The valuation by NAB Authorities vide their letter dated 1st April, 2000 might not be taken as an absolute evidence towards market value yet it was rupees five billion which could have persuaded the Court to think twice before accepting an offer of rupees 1.081 billion, totally disproportionate to other expected prices.
20. There were main bidders namely Green House, Amjad Textile, Fazal Cloth and Abbasi & Chawla.
All the four bidders withdrew their bids. Fazal Cloth, Muhammad Ibrahim and Abbasi withdrew on 20-6-2000. Green House Spinning Mills and Amjad Textile Mills withdrew on 5-7-2000. The withdrawal of earnest money was also admitted. At this stage when once all the bidders had withdrawn including the highest bidder of rupees 1.071 billion, there was no reason to allow Green House to re-enter the arena, not by auction but by negotiations.
21. The fresh offer of Green House of rupees 1.081 billion given after withdrawal, ought to have been done in presence of the other bidders, if best way of re-auction was not selected. The conditions of this last offer are such that it amounted altogether to a new bid. Former management was not allowed sufficient time to fulfil terms of offer or highest bid while, on the other hand respondent No,4 was given convenient terms by allowing 30 days for initial deposit of 25% while against the offer of former management they were directed, to deposit rupees 125 million in 2 to 7 days. This was through order, dated 5-7-2000 and 7-7-2000. Respondent No,4 was allowed five years to repay though under Order XXI, Rr.84 and 85, C.P.C. Total auction price needs to be deposited within 15 days.
22. No time was allowed to Rashida Saigol for practically justifying her offer of rupees 250 crores.
Official Liquidators excluded Maqbool Cotton and Umer Usman on the plea that the earnest money was offered partly through cheque and partly through draft despite the fact that the genuineness of such payments could have been ascertained through the Bank. K. Saraswathy's case (AIR 1989 SC 1553), Messrs Sarbaz Cement Ltd. (1996 SCMR 88), Specialty Traders (1987 CLC Karachi 2109), Chemicals and Allied Products (1988 Company Cases 842) and Messrs H.P. Financial Corporation (1990 ISJ (Banking) 395 Hmiachal Pradesh) can be referred to in support of payment by cheques and Bank drafts with the only reservation that the auctioneer or the Court should verify the genuineness thereof from the Bank. No such effort was made in the instant case.
23. The transfer of rights by respondent No,4 in favor of respondent No,5 could not be made, without the registration of sale in favor of the said bidder. The auction purchaser had sold his rights without payment of entire sale price and thus without becoming the owner. The transferee was a young company incorporated on 20-10-2000 and financially not sounds. The arguments qua further transfer in favor of respondent No,5 are mostly of academic nature because once it is held that the bid in favor of respondent No,4 was not valid and proper, the transfer in favor of respondent No,5 automatically goes therewith.
24. Learned counsel for the appellant while relying on Hudayabia Textile Mill's case (PLD 1987 SC 512 argued that the judicial discretion in the instant case was not properly exercised. Sagar Mahila Vidyalaya's case (AIR 1991 SC 1826) relied upon by learned counsel for respondents, is not attracted because in that case the judgment-debtor having not challenged the auction proceedings in the proper founn, had resorted to Civil Court through a suit for declaration after the passage of 16 years. The case of Messrs Ittehad Cargo Service (PLD 2001 SC 116) is also not applicable because in that case an offer by outsider was disallowed because Vigilance Directorate had not recommended the party for pre-qualification.
25. Learned counsel for the respondents further placed reliance upon the case of Mst. Asima Zafarul Hassan (1981 SCMR 108) in support of argument that any violation in publication of proclamation required to be ignored and could not be set aside provided no substantial loss is proved to have been sustained by the judgment-debtors. This is distinguishable because, as discussed earlier, in the instant case there is substantial loss to the judgment-debtors. If the company is sold at the given price and the Court did not act in the best interest of all the persons interested in the X property and the assets of the company under liquidation are not kept under consideration, then the purpose is not served and no breaches can be condoned, as held by this Court in Mian Saleem-ud-Din's case (198$ SCMR 1717).
26. Consequently, while agreeing with the reasons advanced by my learned brother Mr. Justice Faqir Muhammad Khokhar, I accept Civil Appeal No,1540 of 2001 and also Civil Petition No,124-L of 2004 after conversation into appeal, set aside the impugned order dated 22-9-2000 and 10-11- 2000 and remand the case back to the High Court with direction that the assets of the appellant company be put to resale through auction. The learned Company Bench of Lahore High Court shall, in the given attending circumstances, keep the market value in view and the same shall be fixed as reserve price. It shall of course, be at liberty to make such arrangements and take such measures for management and administration etc. Of the Mills during interregnum as it may consider appropriate for the best interest of the company and the creditors.
(Sd)
SARDAR MUHAMMAD RAZA KHAN, J ORDER OF THE COURT ' By majority of two to one, Civil Appeal No,1540 of 2001 and also Civil Petition No,124-L of 2004 (after conversation into appeal), are accepted, the impugned orders dated 22-9-2000 and 10-11-2000 are set aside and the case is remanded to the High Court, with direction that the assets of the appellant-Company be put to resale through auction. The learned Company Bench of Lahore High Court shall keep the market value in view and same, in the given attending circumstances, shall be fixed as reserve price. It shall of course, be at liberty to make such arrangements and take such measures for management and administration etc. Of the Mills during interregnum as it may consider appropriate for the best interest of the company and the creditors.
(Sd.)
FAQIR MUHAMMAD KHOKHAR, J (Sd.)
MIAN MUHAMMAD AJMAL, J (Sd.)
SARDAR MUHAMMAD RAZA KHAN, J