Gujarat High Court
Gujarat Industrial Co-Op. Bank Ltd vs G I I C Ltd on 25 April, 2011
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No. 5550 of 2003
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GUJARAT INDUSTRIAL CO-OP. BANK LTD.
Versus
G I I C LTD.
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Appearance:
1. Special Civil Application No. 5550 of 2003
MR JT TRIVEDI for
MR BJ TRIVEDI for Petitioners
MR RD DAVE for Respondent No. 1
Respondent No. 2 :: In-person
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CORAM : MISS JUSTICE R.M.DOSHIT
Date of Order: 02/05/2003
ORAL ORDER
The petitioners before this Court are the Gujarat Industrial Cooperative Bank Limited [hereinafter referred to as, "the Bank"] and one of its shareholders. The respondent no. 1 is the State Financial Corporation viz., the Gujarat Industrial Investment Corporation Limited [hereinafter referred to as, "the Corporation"], and the respondent no. 2 is a Public Limited Company [hereinafter referred to as, "the Company"].
The petitioners challenge the action of the Corporation in disposing of the properties of the Company i.e., the land, building, plant and machinery situated at Ankleshwar under the powers conferred under Section 29 of the State Financial Corporations Act, 1951 [hereinafter referred to as, "the Act"].
The petitioners claim that the Company had initially decided to set-up a Plant for manufacture of 'nicotine compounds' at village Dantali, District-Kheda. For setting up of the said plant, the Company had borrowed certain loans from the Bank. The land and building at Dantali were mortgaged to the Bank and the machinery was hypothecated to the Bank. However, on account of circumstances beyond the control of the Company, the said plant could not materialise. The Company, therefore, diversified its resources and set-up a drug factory in G.I.D.C Estate at Ankleshwar. For this purpose, the Company borrowed certain loans from other financial institutions also i.e. from the I.D.B.I., the G.S.F.C and the Corporation. The Company mortgaged its land and building at Ankleshwar to the said financial institutions. However, as far as the machinery is concerned, the machineries which were installed at Dantali and were hypothecated to the Bank were removed and shifted to the Ankleshwar Plant. In the submission of Mr.Trivedi, the machinery of the Company at Ankleshwar still continues to be under the charge of the Bank.
The Company failed to repay the money borrowed by it. Hence, the Corporation has taken over the possession of the land, building, plant and machinery of the Company at Ankleshwar. Under the Advertisement dated 7th April, 2003, the Corporation has invited offers for the sale of the Company. It is this advertisement which is the subject matter of challenge in this petition.
In the submission of Mr. Trivedi, the Company is worth not less than Rs. 60 Crores. However, the advertisement does not mention the approximate price of the land, building, plant and machinery of the Company nor does it give out the upset price. Besides, the machinery which is hypothecated to the Bank is also being sold out by the Corporation. The apprehension is that the sale will be made for pittance on extraneous considerations. Mr. Trivedi has emphatically submitted that the Corporation is "the State" within the meaning of Article 12 of the Constitution of India. It has to disclose transparency in its dealings. In support of his arguments, Mr. Trivedi has relied upon several documents annexed to the petition, the register of charges, report of Chartered Accountant, and certain correspondence.
Mr. Trivedi has also relied upon the judgments of the Hon'ble Supreme Court in the matters of Ram & Shyam Company vs. State of Haryana & Ors. [1985 (3) SCC 267]; of Mahesh Chandra v. Regional Manager, U.P Financial Corporation & Ors. [1993 (2) SCC 279] and The Bank of Bihar v. The State of Bihar & Ors. [AIR 1971 SC 1210]. Mr. Trivedi has also relied upon the judgment of this Court in the matter of (M/s.) Surendrabhai & Company & Anr. v. State of Gujarat & Ors. [1985 GLH (UJ) 53].
The Managing Director of the respondent no. 2-Company has appeared in person and has filed counter affidavit. She has stated that the Bank has the first-charge over the plant and machinery of the Company and that the Company is an ultra high-tech plant and is worth not less than Rs. 60 Crores.
In answer to the notice issued by this Court, the Corporation has entered its appearance through the learned advocate Mr. R.D Dave and has contested the petition.
It is denied that the plant and machinery of the Company at Ankleshwar is hypothecated to the Bank. It is stated that the Company had established an entirely new plant at Ankleshwar for which the Company had heavily borrowed money from the financial institutions mentioned hereinabove. The land and building of the Company are mortgaged to the above referred financial institutions and the plant and machinery of the Company are hypothecated to the said institutions. In the submission of Mr. Dave, the loan was advanced under pari passu agreement. The Company has failed to repay the loan amount and all the financial institutions have agreed that the loan amount shall be recovered from the sale of the land, building, plant and machinery of the Company in exercise of the power conferred under section 29 of the Act. That pursuant to the said agreement, the Corporation has advertised the sale of the Company under the aforesaid advertisement dated 7th April, 2003. Mr. Dave has further mentioned that the Company has been properly valued. However, the valuation is not disclosed so as to avoid prospective buyers forming a cartel and in making an offer far below the genuine price of the Company. Mr. Dave has submitted that there is no evidence whatever that it was the machinery at Dantali which was shifted to the plant at Ankleshwar. He has further relied upon the communication dated 5th March, 2003 [Annexure-F to the petition]. Mr. Dave has submitted that the Bank was informed well in advance about the taking over of the possession of the Company and the proposed sale of the same. The Bank was also informed to remove the goods and the stock under its charge. In answer to the said intimation, the Bank had suggested prospective buyers who would be ready and willing to buy the stock hypothecated to the Bank alongwith the machinery, shed, etc. In the submission of Mr. Dave, had there been a genuine claim the Bank would have objected to the sale of the plant and machinery or had claimed its charge over the said plant and machinery. He has submitted that the present petition has been preferred with a view to delaying disposal of the assets of the Company. Mr. Dave has relied upon the judgment of the Hon'ble Supreme Court in the matter of The State Financial Corporation & Anr. vs. M/s. Jagdamba Oil Mills & Anr. [AIR 2002 SC 834].
It is not disputed that the Corporation and for that matter every financial institution is accountable to the people in general and that such institution has to make all efforts to fetch the maximum possible price. However, in the present case, it would be premature to say that the Corporation has not acted in the interest of the financial institutions or has undervalued the assets of the Company and the same is being disposed of for extraneous consideration. Besides, the petition also involves disputed questions of fact as regards the charge of the Bank over the machinery of the Company sought to be sold by the Corporation. There is no material on the records of the matter to even prima facie show that the Bank has a charge over any of the machineries of the Company at Ankleshwar. Further, till the date, the Bank has not made any effort to recover its dues from the Company. No action whatever has been taken by the Bank against the Company. The petition is frivolous and appears to have been filed with an oblique motive.
In above view of the matter, the proposed sale of the Company cannot be stalled at the instance of the Bank. The petition is dismissed in limine.
[Miss R.M Doshit, J.] Prakash*