Gujarat High Court
Textile Labour Association vs O.L. Of Vijay Mills Ltd on 26 December, 2010
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY APPLICATION No 363 of 1998
in
COMPANY PETITIONNo 79 of 1989
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TEXTILE LABOUR ASSOCIATION Versus O.L. OF VIJAY MILLS LTD.
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Appearance:
1. COMPANY APPLICATION No. 363 of 1998 MR DS VASAVADA for Applicant No. 1 OFFICIAL LIQUIDATOR for Respondent No. 1 MR RM DESAI for Respondents No. 1,3 SINGHI & CO for Respondent No. 1 MR ARUN H MEHTA for Respondent No. 2 NOTICE SERVED BY DS for Respondent No. 4
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CORAM : MR.JUSTICE N.G.NANDI Date of Order: 01/11/2001 CAV ORDER
1.In this application by the workers union praying for direction to the Official Liquidator to pay an amount of Rs.45,30,44,109/- towards dues of the workmen; the question required to be resolved at this stage is, whether, from amongst the financial institutions, Central Bank of India ('CBI' for short) is entitled to priority over other secured creditors viz. Industrial Development Bank of India ('IDBI' for short) and others for payment, out of the amount realised, or whether 'IDBI' and other financial institutions have priority for payment to them over 'CBI' .
2.Vide order dated 7-9-1993 in the Company Petition M/s. Vijay Mills Limited (in liquidation) came to be wound up and the Official Liquidator attached to this Court was appointed as the Liquidator thereof. The Official Liquidator has taken over possession of assets & properties of the Company. The Sale Committee comprising of Official Liquidator, representatives of secured creditors and the Textile Labour Association sold plant & machineries and other movables of the Company for Rs.2,30,61,000/- . The sale was confirmed by this Court vide order dated 17-2-1998, as suggested by Official Liquidator's Report in this regard. As per Official Liquidator's Report, the claim by the workers and the secured creditors on the ratio of amount payable on the basis of the amount in the account of the Company is as follows :-
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Sr. Particulars Amount Due Ratio Amount payable
No. of creditors Rs. % out of sale
proceeds. (Rs)
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1. Workers 32,82,42,495/- 59.99 1,49,97,500-00
2. ICICI 34,32,555/- 0.62 1,55,000-00
3. IDBI 11,53,365/- 0.21 52,500-00
4. IFCI 36,46,329/- 0.67 1,67,500-00
5. CBI 21,07,04,835/- 38.51 96,27,500-00
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54,71,79,579/- 100 % 2,50,00,000-00
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3.Various affidavits have been filed by secured creditors representing CBI, IDBI, ICICI, IFCI and GIIC, claiming that, out of the amount which comes to the secured creditors, the amount due and payable to them should be paid first and on priority. The CBI claims priority over other secured creditors, whereas other secured creditors claim priority over CBI.
Thus, the question which arises for consideration for the present is, whether CBI is entitled to priority over other secured creditors viz. IDBI and other financial institutions for payment out of the amount realised or whether IDBI and other financial institutions have priority for payment to them over CBI. It is not disputed that the workers claim will rank pari passu with the claims of secured creditors. It is submitted by Mr. Arun H. Mehta, learned counsel for the CBI that CBI has first advanced money to the Company (in liquidation) and CBI has first charge over the movable plant & machinery; that CBI & IDBI as secured creditors do not have pari passu charge in as much as the CBI has the charge over movable plant & machinery. The charge dated 14-12-1984 in favour of IDBI is specified whereas the charge dated 15-6-1987 in favour of IDBI is not registered and it is merely an agreement; that the bridge loan advanced in 1984 was converted as term loan and on 15-6-1987 agreement for creating charge on movable plant & machinery came to be executed; that the charge dated 14-12-1984 merges with the agreement of 1987, which is not registered; that relief clause No. 34 (c) & (d) in the plaint in Bombay Suit is suggestive of the fact that 15-6-1987 charge is not registered; that the charge in favour of CBI on movable plant & machinery is since 1987 as the charge is in respect of all machineries; that the bridge loan of 1984 was cancelled and term loan charge is not registered.
It is submitted by Mr. R.M. Desai, learned counsel for IDBI that the document relied upon by the CBI are only for yarn prior to 1983; that the position as on 20-8-1984, is that, there is no charge of CBI on movable plant & machinery and there is no reference to charge on movable plant & machinery in the documents. That "movables" shown in page No. 119, 122 and 123 cannot include plant & machinery; that the movables cannot be inferred to be as plant & machinery; that no money have been advanced by CBI on plant & machinery and the charge of the CBI is only on Diesel Generating Sets; that there is no specific charge created on plant &machinery and movables would not mean plant & machinery also; that the property mortgaged have to be specifically mentioned in the document and the creation of charge on the property cannot be vague; that there is no document relating to the creation of charge on movable plant & machinery in favour of CBI; that the registration of charge dated 14-12-1984 still subsists and that, the reference of bridge loan converted to term loan as averred in the plaint para-6 of the Bombay Suit is one and the same transaction, and therefore the charge dated 15-12-1984 in favour of IDBI cannot be said to have been satisfied and as the IDBI has equitable mortgage created by the Company in liquidation and as no charge was created in favour of IDBI by the Company in liquidation, that is why prayer in clause 34 (c) & (d) of the Bombay Suit; that even the CBI documents suggests creation of charge in favour of IDBI; that, there can be no enforcement of satisfaction of charge dated 14-12-1984.
It is submitted by Mr.M.B. Buch, learned counsel for ICICI that the letter dated 28-11-1984 (page-226) merely suggests intention of CBI to have charge on movable plant & machinery which is not reflected by the documents on record.
4.Vide order dated 22-2-2001 this Court directed the Official Liquidator to verify claim of the secured creditors so far as the question regarding first charge among the secured creditors is concerned. Official Liquidator in his report dated 24-4-2001 stated that, they received claim along with documents relating to charge from CBI, IDBI, IFCI and the same were forwarded to the Chartered Accountant appointed earlier for verification of claim of workers and secured creditors as the Official Liquidator usually calculates ratio of claim received from the secured creditors and the workers union but not on charge created by the financial institutions. It is suggested that, the relevant details were not provided (except CBI) to Chartered Accountant concerned and therefore the correctness of the claim of the secured creditors could not be verified.
5.CBI has filed affidavit of Mr. P.J. Kumar, Branch Manager, to contend mortgage, hypothecation and pledge in respect of all the properties of the Company in liquidation including building land, plant & machinery and stock in trade etc. is created in favour of CBI as the first charge holder. IDBI has filed affidavit of Mr. A. Khandual, wherein it has been testified that IDBI had sanctioned and granted term loan of Rs.58-00 lacs upon the terms & conditions contained in letter of intent dated 1-6-1984; said term loan was sanctioned against creation of security in favour of IDBI; that the CBI vide its letter dated 28-11-1984 addressed to IDBI gave confirmation that CBI will have first pari passu charge on all the movable and immovable assets of the company in liquidation (excluding such specific machinery purchased out of D.P.G. of Bank and term loan of GIIC Ltd, both present and future) along with financial institutions subject to CBI's prior charges on specific current assets for working capital facilities. Pursuant thereto the company in liquidation executed deed of hypothecation dated 14-11-1984 in favour of IDBI and by the said Deed of Hypothecation sum of Rs.52-00 lacs agreed to be lent and advanced by IDBI to the company in liquidation together with interest thereon was secured by creating charge on the whole of the movable property of the company in liquidation, including its movable plant and machinery, machinery spares, tools etc. both present and future, save and except those purchased under the Deferred Payment Guarantee from CBI and GIIC Limited.
6.Page-169 is copy of the plaint in Civil Suit No. 32 of 1991 filed by IDBI and other financial institutions in the High Court of Judicature at Bombay, wherein CBI is one of the defendants (Defendant No.5). It is averred in para-5 of the plaint that "defendant No.1 (Company in liquidation) made an application to grant advance to pay term loan of Rs.58-00 lacs. A contract was arrived at in Bombay between plaintiffs and defendant No.1 whereunder plaintiffs agreed to sanction loan of Rs.58-00 lacs to defendant No.1 against creation of security by defendants No. 1 to 4 in favour of plaintiffs."
In para-6 it is averred, "pending the compliance of the various terms and conditions and execution of the regular term loan agreement by defendant No. 1 with the plaintiffs, the plaintiffs at the request of defendant No. 1 to 4 agreed to lend and advance by way of interim arrangement out of the said term loan of Rs.58-00 lacs, a bridge loan of an amount of Rs.52-00 lacs on the terms and conditions contained in bridge loan agreement dated 14-12-1984."
In para-7 it is averred, "in order to secure the due repayment of the amounts due and payable by defendant No.1 to the plaintiffs under the said bridge loan agreement together with interest and all other monies payable in respect thereof, defendant No.1 executed the documents; (a) bridge loan agrement dated 14-12-1984, (b) A promissory Note dated 14-12-1984, (c) A deed of Hypothecation dated 14-12-1984; inter alia hypothecating in favour of the plaintiffs whole of the moveable properties of defendant No.1 as set out therein.......(d) An unconditional and irrevocable guarantee dated 14-12-1984 executed in favour of the plaintiffs by defendant No. 2, 3 and 4.
"......That pursuant to the bridge loan agreement the plaintiffs disbursed Rs.35-00 lacs. Subsequently, the plaintiffs pursuant to the agreement arrived at in Bombay as mentioned in para-5 above, disbursed term loan in sum of Rs.35 lacs by cancelling and/or adjusting the amount of bridge loan against said advance and as a result the term loan of Rs.58-00 lacs came to be advanced by plaintiffs to defendant No.1."
Para 9 (b) is regarding deed of hypothecation dated 25-6-1987 inter alia providing...... The Loan Agreement provided that the charge of the plaintiffs thereon shall be subject to the charges created and/or to be created by defendant No.1 in favour of its Bankers on the Banker's goods to secure borrowings in the ordinary course of business of defendant No. 1 for its working capital requirements and also subject to charges created and/or to be created by defendant no.1 in favour of defendant No. 5 and 6 on items of machinery, purchased and/or to be purchased under Deferred Payment Facilities granted to the defendant No.1 by the defendant no. 5 and 6 to the extent of Rs.15 lakhs and Rs.18 lakhs respectively. In para-10 it is averred that, "defendant No. 2,3 and 4 by writing dated 25-6-87 deposited with the plaintiffs No.1 the Certificate in Original relating to the equity/preference shares held by them in defendant No.1 by way of pledge in favour of the plaintiffs to secure the due repayment by defendant No.1 to the plaintiffs of the said term loan of Rs.58-00 together with interest and other monies." In para-11 it is averred, " defendant No. 2, 3 and 4 also executed at Ahmedabad an unconditional and irrevocable guarantee dated 25-6-1987 in favour of the plaintiffs interalia guaranteeing due repayment of the aforesaid loan of Rs.58-00 lacs and payment of interest......" In para-13, it is averred that, "defendant No.1 agreed under the said loan agreement dated 25-6-1987 to create a first mortgage and /or charge in favour of the plaintiffs in a form satisfactory to the plaintiffs of all the defendant No.1's immoveable properties and that the said mortgage and charge shall rank pari-passu with the mortgages and charges created and/or to be created in favour of Central Bank of India, defendant No.5, as contained therein. Clause 3.1 (b) of the Loan Agreement which has been reproduced in para-13 reads " a first charge by way of hypothecation in favour of the Lenders of all the Borrower's movables (save and except book debts), including movables, machinery, machinery spares, tools and accessories, present and future, subject to prior charges created and/or to be created. " In para-14 it is averred that, "defendant no.1 committed defaults of their obligations under the aforesaid loan agreement. The defendants failed and neglected to create mortgage in favour of the plaintiffs of all their immoveable properties as security for repayment of the loans in terms of the loan agreements despite repeated requests and reminders fromthe plaintiffs...."
On these averments the reliefs claimed in para-34
(c) and (d) of the plaint (Bombay Suit) read as under:-
"(c) that it be declared that the agreement dated 25th June, 1987 (Exhibit "G") is valid and subsisting and binding on the 1st Defendants;
(d) that the 1st Defendants be ordered and decreed to specifically perform the said agreement bycreating a first mortgage/charge or second mortgage of charge in favour of the Plaintiffs as this Hon'ble Court may deem fit, to secure the dues mentioned in prayer (a) above; "
7.Thus it would-be seen from the above that the IDBI in the Bombay Suit has been praying for a declaration that the agreement dated 25-6-1987 is valid, subsisting and binding on the Company (inliquidation) and IDBI also prays for specific performance of the agrement dated 25-6-1987 by creating a first mortgage/charge or second charge or charge in favour of IDBI. It is evident from the above that, IDBI and other financial institutions claim to be secured creditors on the basis of the deed of hypothecation dated 25-6-1987. It is not disputed that the CBI advanced various facilities to the Company in liquidation by creating charge on the properties. Charges in favour of the CBI are registered with the Registrar of Companies.
8.The averments in the plaint reproduced above suggests thatpending finalisation of term loan ofRs.58-00lacs, a bridge loan of Rs.52-00 lacs out of the said loan was agreed to be disbursed on the basis of the security. It is also suggested from the plaint that Vijaya Mills Company Limited (in liquidation) passed a resolution on 15-11-1984 accepting terms & conditions of the grant of bridge loan. It is pertinent to note that the deed of Hypothecation of 1984 by which charge was stated to have been created is not coming forth on record. Page-227 (Exhibit-C) is Certificate of Charge in Form No. 8 under Companies Act, 1956. It speaks of creation of charge on 14-12-1984 for repayment of bridge loan of Rs.52-00 lacs. It also refers to the properties namely the whole of movable properties of the Company,including its movable plant & machinery, machinery spares, tools and accessories and other movables, both present and future. The certificate of Registration of Charge, with reference to the Deed of Hypothecation have been produced. Page-119 is the Deed of Hypothecation dated 25-6-1987. It is recited at page-122 that, in pursuance of the Loan Agreement and in consideration of each of the Lenders having lent and advanced and/or agreed to lend and advance the Loans to the Borrower for the purpose and subject to the terms and conditions set out in the Loan Agreement.... It is to be appreciated that as on 28-6-1987 as such no charge was created on the properties of the Company. It cannot be gain said that the charge alleged to have been created by the Deed of Hypothecation dated 28-6-1987 is not registered with the Registrar of Companies, in as much as no Registration Certificate issued by Registrar of Companies in respect of charge created vide Deed of Hypothecation dated 28-6-1987 is coming forth on record,especially in light of the above reproduced averments in the plaint in Civil Suit No. 32 of 1991 and prayer clause No. 34 (d) & (d) (page 166 to 196).
9.It has been recited in para-2 at page-123 of the Deed of Hypothecation that, ' in pursuance of the Loan AGreement and for the consideration aforesaid, the whole of the moveable properties of the Borrower including its moveable plant and machinery, machinery spares, tools and accessories and other movables both present and future (save and except book debts) whether installed or not and whether now lying loose or in cases or which are now lying or stored etc.. have been given in security, under the Loan Agreement provided that the charge of the lenders thereof shall be subject to the charges created and/or tobe created bythe borrowers in favor of the Bankers, on the Banker's Goods, to secure borrowings in the ordinary course of the business of the borrower for its working capital requirements an dalso subject to charge(s) created and/or to be createdby the borrower in favour of CBI and GIIC on the DPG Machinery.
10.Mr. A.H. Mehta, learned counsel for the CBI has placed on record the files containing document dated 8-8-1973 (page 99); document dated 1-3-1976 (page 102); document dated 21-10-1978 (page 103); document dated 13-8-1979 (page 155); document dated 21-11-1980 (page
179); document dated 10-11-1982 (page 198); document dated 27-8-1983 (page 326); document dated 9-9-1983 (page
195); 14-11-1983 (page 196); document dated 23-10-1984; document dated 29-10-1986 (pages 236, 252, 264, 275 and
280).
In all these document the Schedule of Goods referred in the instrument reads as follows :-
All tangible movable property comprising main items viz. cotton balesand/or cloth bales. Page-4 of document page-99 contain schedule of goods referred to in the instrument. The relevant portion reads " all tangible moveable property of the borrowers which now or hereafter from time to time during this securityshall be brought in stored, or be in or about the promises or godowns of the borrowers at Ahmedabd or any other else comprising all the existing plant (other than fixed) machinery (other than fixed) and spare parts and other than moveable assets purchased bythe borrowers from time to time. Page-4 of document page-100 reads ' all goods and tangible moveable property of the Borrowers delivered to the Bank and stored or lying in or about the godown or premises at Ahmedabad, such goods and tangible moveable property comprising the following main items viz. cotton bails or cloth bales'. The schedule at page-4 of document page 103 reads as follows:-
' All tangible moveable property such as products, stock in trade and goods of the Borrowers which now or hereafter from time to time during this security shall be brought in stored or be in or about the premises warehouses or godowns of the Borrowers in Ahmedabad or anywhere else, comprising all sorts of cotton yarn, cloth in bales or loose or in process staple fibre cotton, staple fibre yarn, Artificial silk yarn, artificial silk cloth, stores, coal, colours, chemicals cotton waste etc. All tangibles moveable property of the borrowers which now or hereafter from time to time during this security shall be brought in, stored or be in or about the premises or godowns of the borrowers at Ahmedabad or anywhere else comprising all the existing plant (other than fixed) machinery (other than fixed) and spare parts and other moveable assets purchased bythe borrowers from time to time. ' The schedule at page-6 of the document page-112 reads as follows:-
' All tangible movable property such as products, stock in trade, and goods of the Borrowers which now or hereafter from time to time during this securityshall be brought in stored or be in or about the premises, warehouses or godowns of the Borrowers at Ahmedabad, or anywhere else;
Comprising all sorts of cotton yarn, cloth in bales, or loose or in process staple fibre cotton, staple fibre yarn, artificial silk yarn, artificial silk cloth, stores, coal, colours, chemicals, cotton waste etc. All tangible moveable properties ofthe borrowers which now or hereafter from time to time during this security shall be brought in, stored or be in or about the premises or godowns of the borrowers at Ahmedabad or any where else comprising all the existing plant (other than fixed) machinery (other than fixed) and spare parts and other moveable assets purchased bythe borrowers from time to time . "
Page 232 is the letter dated 28-11-1984 by CBI to Chartered Accountant requesting of issuance of certificate to IDBI (Exhibit-D). By this letter CBI has certified the balance outstanding in each account as on 26-11-1984. It also reads "nature of limit and balance outstanding. Please note that cash credit facility is allowed against hypothecation of the Mills Co's stock of cotton, cotton yarn, Cloth inbales, or loose or in process, staple fibre yarn, stores, colours, chemicals, coal etc. and charge is registered with the Registrar of Cos, in our favour.
Further please note that the machineries purchased under Deferred Payment guarantees and all the above facilities are covered by the Security of Block Assets of the Mills company equitably mortgaged to the Bank ".
Regarding this letter, it has been submitted bylearned counsel for IDBI that the first charge of CBI on movable plant & machinery is not included as the said letter does not refer to charge of CBI on movable plant & machinery.
11.Page-226 (Annexure B) is also a letter dated 28-11-1984 by CBI addressed to IDBI regarding consent letter for credit facilities to the Vijaya Mills Company Limited ( in liquidation). It appears from the tenor of this letter that IDBI desired consent of CBI for credit facilities to the Company in liquidation. The letter reads as follows :-
" As desired by the company, we give hereby our consent as under:
Central Bank will have first pari passu charge on all the moveable and immovable assets of the company (gross value Rs.535.7 lacs and net value Rs.202.35 lacs as of 31st December, 1983) both present and future (excluding such specific machinery purchased out of DPG of our Bank and term loan of GIIC) alongwith financial institutions subjectto our prior charges on specific current assets for working capital facilities. "
It will be seen from this letter that IDBI has desired CBI to consent that CBI will have first pari passu charge on all the movable and immovable properties of the Company purchased out of DPG of CBI and term loan of GIIC, along with financial institutions subject to prior charges of CBI on specific current assets for working capital facilities. This letter cannot be treated as mere intention on the part of IDBI to grant credit facilities to the Company in liquidation as sought to be contended by learned counsel for ICICI.
It may also be seen that vide letter dated 28-11-1984 the CBI stated that the charge of IDBI and other creditors will rank pari passu on all the movables and immovables of the assets of the Company, subject to exclusive charge in favour of CBI and GIIC in respect of specified items.
12.Agreement dated 25-6-1987 for a term loan / hypothecation dated 28-6-1987 cannot be regarded as the continuation of the original transaction vide agreement dated 14-12-1984 and the transaction of bridge loan and the term loan are two distinct transactions and that is why relief of declaration in para-34 (c) as regards agreement dated 25-6-1987 as valid and subsisting and binding on defendant Company and relief (d) requiring defendant company specifically perform the said agreement by creating first mortgage/charge. Now simply because Report of Chartered Accountant M/s. Jain Chowdhary & Co. (Annexure B) does not record satisfaction of the charge dated 14-12-1984 it would not necessarily mean that the charge dated 14-12-1984 created in favour of IDBI is not satisfied and still subsisting. It need hardly be said that the charge created by the Deed of Hypothecation dated 25-6-1987 is an unregistered charge allegedly created and is void against all other creditors including the Official Liquidator in view of the specific provisions contained in section 125 of the Companies Act, 1956.
13.It may also be seen that even if charge is created in favour of IDBI vide deed of hypothecation dated 28-6-1987 even then the same is long after the creation of registered charge in favour of CBI in respect of all the properties movable and immovable, plant & machinery. Thus it would-be seen from the above that the charge created by deed of hypothecation dated 14-12-1984 would stand merged in view of conversion of bridge loan into term loan for which deed of hypothecation dated 25-6-1987 has been created (unregistered) in favour of IDBI and the charge vide hypothecation dated 14-12-1984 would stand satisfied and the charge vide deed of hypothecation dated 25-6-1987 having not been registered and particularly in view of the averments in the plaint (page 169-193) reproduced above in Civil Suit No.32 of 1991 before the Bombay High Court and the relief clause
(c) and (d) of para-34 in the said plant, the letter dated 28-11-1984 (page 226) cannot be said to be creating first charge in favour of IDBI and other financial institutions and IDBI and other financial institutions cannot claim pari passu charge along with CBI over sale proceeds of properties of the Company (in liquidation).
14.Order accordingly.
Dt: 1-11-2001 ( N.G. Nandi, J ) /vgn