Gujarat High Court
Modern Denim Limited vs State Of Gujarat on 7 December, 2021
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/12079/2020 ORDER DATED: 07/12/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 12079 of 2020
With
R/SPECIAL CIVIL APPLICATION NO. 14592 of 2020
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MODERN DENIM LIMITED
Versus
STATE OF GUJARAT
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Appearance:
MR ABHIJEET S GATHRAJ(10262) for the Petitioner(s) No. 1,2,3,4
MR AYAAN PATEL, AGP for the Respondent(s) No. 1
MR. S. M. GOHIL(3785) for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 07/12/2021
COMMON ORAL ORDER
Heard learned advocate Mr.Abhijeet S. Gathraj for the petitioners, learned Assistant Government Pleader Mr.Ayaan Patel for the respondent No.1 and learned advocate Mr.S.M.Gohil for the respondent No.2.
1. The petitioners have filed these petitions with the following prayers :
"A. YOUR LORBSHIPS may be pleased to admit and allow the present petition in the interest of justice.
B. YOUR LORDSHIPS may be pleased to issue a Writ of Mandamus or any other writ and quash and set aside the communication dated 06/09/2016 and 09/11/2019, at ANNEXURE-P and ANNEXURE Q hereto, and direct Respondent No. 2 to release the securities pledged and transfer the securities back to its erstwhile owners in the interest of justice.
C. During admission, pendency and final disposal of the Page 1 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 present petition, YOUR LORDSHIPS may be pleased to direct the respondent no.2 not to sale, transfer and dispose-off the securities in the interest of justice.
D. Pass any such other and/or further order that may be thought just and proper, in the facts and circumstances of the present case;
E. Award cost of this Petition."
2. The petitioners of both the petitions pertain to availing financial assistance from respondent No.2-Gujarat State Financial Corporation. Both these petitions are filed by the group companies.
3. The brief facts of the case are as under :
3.1. The petitioner No.1-Companies are registered under the provisions of the Companies Act, 1956.
Other petitioners are the Private Limited Companies being share holders of the various
companies whose shares were pledged as security with the respondent No.2. to offer bill discounting facility to the petitioner No.1-
Companies.
3.2. The petitioner No.1-Companies in the year 1996 availed bill discounting facility from the respondent No.2 for the purpose of its business of manufacturing of denim fabrics and towels. For availing financial assistance from the respondent No.2, the petitioner No.1-Companies agreed to pledge equity shares of the petitioner and its Page 2 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 group companies.
3.3. Thereafter, the petitioner No.1-Companies converted the bill discounting facility into working capital term loan in the year 1994. Due to week market condition, the petitioner No.1- Companies defaulted on repayment of various loans including working capital term loan availed from respondent No.2. Respondent No.2 therefore, invoked the pledge with the respondent No.2 in its name with the consent of the petitioners and share certificate holders.
3.4. The petitioner No.1-Companies also declared as seek companies and applied for rehabilitation before the Board of Industrial and Financial Reconstruction in the year 2000.
3.5. It appears that in the year 2013, the respondent No.2 offered one time settlement of the outstanding loan to the petitioner No.1- Companies and response thereto, a proposal for one time settlement of the dues with respondent No.2 was submitted by the petitioner No.1- Companies. The respondent No.2 accepted the proposal for one time settlement and sanctioned the one time settlement scheme vide sanction letter dated 30th June, 2014. The petitioner No.1- Companies repaid the outstanding amount as per the one time settlement scheme along with Page 3 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 interest for delayed payment. The petitioner therefore, requested the respondent No.2 to issue no due certificate and arrange for release of all security, shares and personal guarantee offered by directors and to withdraw the legal cases.
3.6. The petitioner No.1-Companies requested the respondent No.2 to release the securities pledged by the petitioner No.1-Companies after issuance of the no due certificate by the respondent No.2 and in response thereto, vide letter dated 18.11.2015, the respondent No.2 asked the petitioner No.1-Companies to provide the address of the share certificate holders of the securities which have been pledged with the respondent No.2. The petitioner No.1-Companies therefor,e by letter dated 23.11.2015 provided addresses of the share certificate holders of the securities pledged with the respondent No.2.
3.7. However the respondent No.2 by letter dated 06.09.2016 informed the petitioner No.1-Companies that as the respondent No.2 had invoked the pledged shares in the year 2004 and transferred the securities pledged in the name of the respondent No.2-Corporation in the year 2004, nothing further is required to be done for the pledged securities.
Page 4 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022C/SCA/12079/2020 ORDER DATED: 07/12/2021 3.8. It appears that thereafter, the petitioner No.1-Companies requested the respondent No.2 to release the securities pledged by writing various letters from 2016 to 2020. The respondent No.2 however, did not respond to such letters and reiterated its stand that since the pledge of shares is already invoked in 2004 and transferred in name of respondent No.2-Corporation, the same are not required to be released and the same cannot be retransferred.
4.1. Learned advocate Mr.Gathraj submitted that the respondent-Corporation is required to transfer the shares which were pledged by the petitioner as security in the year 1996 as per the terms and conditions of the One Time Settlement Scheme. Learned advocate Mr.Gathraj heavily relied upon the terms of the OTS and submitted that as the petitioner had availed the One Time Settlement Scheme, the terms and conditions of the same are binding upon the respondent-Corporation and as per the terms of the One Time Settlement Scheme, the respondent is required to return the shares which were pledged by the petitioners in the year 1996.
4.2. Learned advocate Mr.Gathraj also relied upon the letter dated 18.11.2015 issued by the Regional Manager of the respondent-Corporation calling upon the petitioner to provide the Page 5 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 address of the share certificate holders to release the security of the petitioner-Company. It was therefore submitted that the respondent- Corporation has shown willingness to transfer the shares back in the name of the original share holders on issuance of the no due certificate by the respondent-Corporation in name of the petitioners.
4.3. Learned advocate Mr.Gathraj further submitted that by order dated 9th December 2019, the respondent-Corporation rejected the earlier decision taken on 6th September, 2016 wherein, the respondent-Corporation has denied to re-transfer the share certificate in name of the share holders of the petitioner-Company as such shares which were pledged by the petitioner in the year 1996 and were transferred in the name of the respondent-Corporation by invoking the security in the year 2004 and shares have already been transferred in name of the respondent-Corporation on account of the non-payment of the dues by the petitioner-Company by the consent of the petitioners. It was submitted that the stand taken by the respondent-Corporation is contrary to the terms and conditions of the One Time Settlement Scheme which is binding upon the respondent-Corporation and therefore, the respondent-Corporation is bound to re-transfer the shares which were pledged by the petitioner in the year 1996.
Page 6 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022C/SCA/12079/2020 ORDER DATED: 07/12/2021 5.1. On the other hand, learned advocate Mr.Gohil appearing for the respondent No.2-Corporation submitted that the shares which were pledged by the petitioner-Company in the year 1996 were transferred in name of the respondent-Corporation by invoking the pledge with the consent of the petitioner-Companies on account of the non- payment of the out standing dues.
5.2. It was further submitted that only because the petitioner is entitled to the securities on availing the One Time Settlement Scheme would not amount the securities which is already liquidated should be restored back. Learned advocate Mr.Gohil placed reliance upon the following averments made in the affidavit-in-reply filed on behalf of the respondent No.2 :
"4. I now Crave Leave to bring the Following Facts to the Notice of this Hon'ble Court:
a. The Petitioners have not come before this Hon'ble Court with clean hands and have not produced relevant documents as well as have suppressed material facts from this Hon'ble Court as stated by me hereunder and are therefore not entitled to the discretionary and highly prerogative writ jurisdiction of this Hon'ble Court.
b. I state that while some averments pertaining to the finance advanced by the Respondent no. 2 Corporation are made, pertaining to the two separate modes of advancement of the same to the Petitioner no. 1 are made, it is material to note that one hand the Petitioner no. 1 availed the sanction for Bill discounting facility which was converted to a Working Capital Term Loan vide Annexure A communication, the Petitioner no. 1 also availed the advancement of money by way of an Investment in Non-Convertible Debentures of the said Company, which though being mentioned in passing in the petition to give the impression of it being a separate transaction, is in fact material to consider because the Shares in question as sought to be claimed by the Petition in the Prayer clause were separately taken in as a security for both the types of Finance granted by the Respondent no. 2 Page 7 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 Corporation.
c. I state that in this regard the Sanction letter dated 27.05.1997 for the Investment in the Debentures together with communication of the Petitioner no. 1 in this regard dated 29.05.1997 are annexed herewith and marked as 'Annexure R/1' collectively. The condition no. 2 in this regard provided for the giving of shares as security in addition to the second charge on the assets of the petitioner no. 1 company as is accepted in the communication of the said company. To the best of my knowledge the company did not create and register such charge in the records of the Registrar of Companies.
d. There were also Unattested Agreement for lodgement of Share Certificates entered into by the Petitioner nos. 2 to 4 as well as one Shrine Trading Co, Pvt. Ltd. Which are not produced. The nature of the said agreements can be seen for the kind of security that was provided as per the documents annexed herewith and marked as 'Annexure R/2' Collectively. To the best of my knowledge, Shrine Trading Co. Pvt. Ltd. Is struck off from the records of the Registrar of Companies, which fact is to the knowledge of the Petitioners herein, is suppressed from this Hon'ble Court and the said company is not joined in the present petition, and still the Prayers are couched in general, seeking to '... transfer the securities to the erstwhile owners in the interests of justice' even as the name of the said Shrine Trading Co. Pvt. Ltd. Is mentioned in the paragraph 2.7 of the petition as an erstwhile certificate holder.
e. That the Petitioner nos. 2 to 4 have also executed Irrevocable Power of attorney dated 29.05.1997giving power to GSFC to deal/transfer shares given as collateral security for said advances which are not produced with the petition and are material to the nature of invocation of the collateral security of shares by GSFC. The copies of the same are produced herewith and marked as 'Annexure R/3' collectively. A bare perusal of the documents would show that it was always envisaged that in the recovery of the advances of GSFC, it could always transfer the shares given as collateral security to itself, which fact is suppressed. I draw the attention of this Hon'ble Court to the following among other provisions thereof:
".... 1. In the sole and absolute discretion of GSFC without seeking our consent either express or implied to sell and transfer certificates and / or to do all such other acts as necessary to effectuate said purpose and utilize the same for adjustment of the dues of GSFC.
2. To make, execute, sign, seal and deliver in favour of GSFC or any other person/s entirely at our cost and expenses in all respects.
All such documents that GSFC may require and perform all such acts, deeds and assurances in favour of GSFC as may be necessary or proper for the purpose of securing and for perfectly assuring the repayments of the said financial assistance or such part thereof as may be for the time being remain unpaid and all interest commitment charges, expenses and all other money Page 8 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 payable under the agreement for bill discounting."
f. The material document being a Joint and Several Personal Guaranice given by Mr. Sachin Ranka, for the advances given by GSFC was also given. A Copy of the same dated 19.12.1996 is annexed herewith and marked as 'Annexure R/4'. The same is material in as much as under the OTS settlement, the release of the same was one of the benefits derived thereunder.
g. That the Petitioner no. 1 simply did not pay back a single rupee on the advances as agreed in the Sanction letters, to such an extent that the dues on the single advance of Working Capital Term loan, as per the Contractual dues, on 30.09.2013 when the OTS was attempted to be availed, was about a whopping Rs. 144,42,63,569/- [about One hundred and Forty-Four Crores]. If the said company had honoured its Interest obligations under the Debentures, GSFC would be entitled to Rs. 470.60 lakhs as on 31.12.2013.
h. The petitioner no. 1 and the guarantor simply chose to ignore the multiple reminders and notices issued by the GSFC in this regard. Copies of some of the attempts in this regard are annexed herewith and marked as 'Annexure R/ 5' collectively. It is also respectfully submitted that the Loan agreement envisaged providing Post-dated cheques as is also seen from the communication dated 21.01.2002 annexed with R/5 that the said Cheques were dishonoured and the non-prosecution and withdrawal of the cases filed by GSFC was one of the benefits availed under the OTS scheme.
i. That upon being unsuccessful in seeking repayment, GSFC transferred the Shares given as collateral security for the advances, and in this regard was in possession of Original Share Certificates, duly filled transfer deeds duly filled in, stamped, signed and executed in all respect for transfer of the same to GSFC, and the same with the Power of attorney and agreements referred above, were submitted and with the consent the transfer was done. The confirmation of transfer of all shares was received on 31.05.2004 and the same together with supply of original share cettificates with the endorsement in the name of GSFC of some of the shares [so as to not burden the records of this Hon'ble Court] are annexed herewith and marked as 'Annexure R/6' collectively. To the best of my knowledge the name of GSFC was transferred in the membership register and the manner of transfer was in accordance with the Articles of Association of the Petitioner no. 1 company, the extract of the relevant clause for the same is produced herewith for the kind perusal of this Hon'ble Court and marked as 'Annexure R/7'. That however due to the management of the said company, the value of the said shares at the time of transfer was nil and it has been the written intimation on various occasions by the said company that the accumulated losses of the company far exceeded its net worth and therefore no credit was given which fact was to the knowledge of the petitioner no. 1 company and the transfer has never been challenged by any of the petitioners in any manner till date.
j. That I respectfully submit the present petition is also barred by delay and laches in as much has under the guise of the present petition, the transfer of Page 9 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 the said shares completed way back in 2004 is prayed to be reversed. I further beg to submit that even otherwise without prejudice to the other contentions, even the cause of action under settlement also accrued on 06.09.2016 in as much as the prayers sought under the petition have been communicated to be not capable of being granted on the said date and therefore also the petition is beyond 'reasonable time' as held in a catena of decisions.
k. I respectfully submit without prejudice to the contentions of suppression, delay and laches that even on merits the petitioners do not have any basis in law and the petition is misconceived in that regard also. I submit that though the petitioner was very well aware of the completion of the transfer way back in 2004 and its implications in law, the petitioner did not specifically traverse that it would seek a 're-transfer' of the shares already transferred as envisaged in Article 21 of the Articles of Associations under the settlement and kept GSFC in the dark regarding the same. I submit that the working capital term loan was settled under the applicabie OTS Scheme of GSFC whereunder the settlement would save any security not already invoked as on date of the availing of the scheme. The settlement would not set the clock back to an invoked collateral security as it would seize to remain a 'Security' once it is invoked. I respectfully submit that it is normal practice to mention revert of any security post settlement, but the import would be 'Security, if any' and it appears as if post the settlement, in meeting with the then Regional Manager (who has since retired from service) who it appears was under a mistaken premise regarding whether the shares in question were continuing as Security when the communication dated 18.11.2015 was issued. However, I respectfully submit that the said mistaken premise would not change the legal implication of the completed transfer and it appears as if the petitioner no. 1 intentionally chose to keep GSFC in the dark. I respectfully submit that out of the two kinds of financial advances, the working capital term loan was settled as per the OTS Scheme and the investment in debentures was settled under authority of the Board of GSFC on the same terms as the Scheme and it was in this factual background that dues cf a whopping Rs. 144,42,63,569/- [about One hundred and Forty-Four Crores] of the working capital and interest dues of Rs. 470.60 lakhs as on 31.12.2013 of Debentures were settled for principal of Rs. 1.50 crores each plus expenses. That under the said settlement, the benefits included wiping away the entire default, release of personal guarantee of the director of the petitioner no. 1 company, withdrawal of cases and nonprosecution of default including owing to dishonour of cheques and no attempt was made to repudiate the settlement. It was only after the settlement that when specifically, the transferred shares were sought to be given back, did GSFC realise that the same were already invoked and no more remained a 'Security'. Thereafter legal opinion was taken, and the communication dated 06.09.2016 was issued."
5.3. Relying upon the aforesaid averments, it was submitted that the petitioner is not entitled to Page 10 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 the prayers made in this petition in view of the undisputed facts emerging from the records.
6. Having heard the learned advocates for the respective parties and having gone through the materials on record, it is not in dispute that the petitioner placed the shares of the petitioner-Companies with the respondent No.2- Corporation by way of security to avail the bill discount facility which was later on converted into working capital assistance facility. In the year 2001, due to financial crises the petitioner-Company started making defaults in payments of the Out Standing Dues of the respondent No.2 and in the year 2004, the respondent No.2 was compelled to invoke the pledge by transferring the shares which were of the petitioner-Company in its own name. The petitioner agreed to such transfer in the year 2004.
7. In view of the above facts and the petitioner has already permitted the respondent No.2-
Corporation to transfer the shares which were pledged by it in the year 1996, such shares seizes to be the security in the hands of the respondent No.2-Corporation.
8. In view of the above, as per the terms and condition of the One Time Settlement Scheme which provides for return of the securities would Page 11 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022 C/SCA/12079/2020 ORDER DATED: 07/12/2021 include the security which was existence at the time of sanction of the One Time Settlement Scheme and not the security which was created at the time of sanctioning of the financial assistance. In such circumstances, the prayer made by the petitioner cannot be granted in view of the fact that the security of pledge of the shares did not exist on the date of sanction of the One Time Settlement Scheme. The petition is therefore devoid of any merit and is accordingly dismissed. Notice is discharged.
(BHARGAV D. KARIA, J) PALAK Page 12 of 12 Downloaded on : Wed Jan 12 07:46:11 IST 2022