Madras High Court
T. Velusamy vs Official Liquidator, High Court, ... on 12 August, 1991
Equivalent citations: [1992]73COMPCAS24(MAD), (1991)IIMLJ504
Author: A.R. Lakshmanan
Bench: A.R. Lakshmanan
JUDGMENT Lakshmanan, J.
1. Before dealing with all the applications, it is necessary for me to briefly state the history of the case :
This court, by order dated February 22, 1991, in Company Application No. 1561 of 1990 in Company petition No. 28 of 1986, directed the respondent herein (official liquidator) to invite sealed tenders for the sale of the properties belonging to the company in liquidation by publishing advertisements in newspapers. Accordingly, the official liquidator had published necessary advertisements in The Hindu, The Indian Express, Economic Times and Financial Express (all in English) and in Daily Thanthi (Tamil), calling for sealed tenders for the sale of the company's property. The advertisements were published in the said newspapers on March 9, 1991, and March 10, 1991. Pursuant to the advertisements in the newspapers, many parties evinced considerable interest in the purchase of the property of the company (the textile mill) in liquidation. About 115 persons obtained from the office of the official liquidator copies of the terms and conditions and tender forms between April 8, 1991, and April 10, 1991. About 35 persons had visited the factory premises at Pudukottai for inspection of the machinery, etc. Though the initial response to the advertisements was quite encouraging, the official liquidator received tenders for purchase of the company's property only from three persons. He had also received an unsealed cover from one Mehta Traders, captioned "Tender for the purchase of machinery belonging to the Cauvery Spinning and Weaving Mills Ltd. (in liquidation)". Pursuant to the notice, the representative of the Tamil Nadu Industrial Investment Corporation Ltd., the Bank of India and the State Government of Tamil Nadu were present at the time of opening of the tenders in the officer of the respondent on April 16, 1991, at 11 a.m. The tenders received by the respondent were opened in the presence of the aforesaid persons. The names of the tenders and the particulars of the offers received are as under :
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S. No. Name of the tenderer E.M.D. with Price
D.D. No. and offered
date Rs.
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1. Sri T. S. Velusamy, 1,00,000 2,80,00,000 519, Big Bazar Street, D.D. 0825271, Trichirappalli - 8. dated 11-4-1991
2. Senthel Building 1,00,000 1,89,09,699 Manufacturing Co. Pvt. P.O. 702316, Ltd., Coimbatore dated 15-4-1991
3. Sri M. K. Thaila 1,00,000 2,62,00,000 Mudaliar, D.D. 082570 Trichirappalli dt. 11-4-1991
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Brief terms and conditions : Payment of 20 per cent. of the tender amount within ten days and the balance in 30 days from the date of confirmation of sale.
The said three offerers were informed that if they so desire, they should be present in court at the time of hearing to make submissions, if any, with the leave of this court in respect of their offers.
The Bank of India, the first respondent in Company Application No. 1561 of 1991 filed a memo, stating that they have no objection whatsoever to this court's accepting the offer for a sum of Rs. 2 crores and Rs. 80 lakhs made by T. Velusami, No. 519, Bazaar Street, Trichy, and that he may be called upon to pay 20 per cent. of the offer within ten days.
The learned official liquidator filed his further report, dated April 18, 1991, with some enclosures.
2. My learned brother, Maruthamuthu J., after hearing the respective parties, viz., the official liquidator and learned counsel for the Bank of India, Madras and the Tamil Nadu Industrial Investment Corporation Ltd., Madras, passed the following order on April 19, 1991 :
"When the offers were taken up for consideration, Senthel Building Manufacturing Co. (P.) Ltd., Coimbatore, who offered a price of Rs. 1,89,09,699 before the official liquidator expressed their desire to enhance it even beyond Rs. 2,80,00,000 for which Sri T. Velusamy made the offer. Since there is the likelihood of getting increased price for the property in question, the two offerers, viz., Velusamy and Senthel Building manufacturing Co. (P.) Ltd., are permitted to bid. It is also open to the other offerers who had already made their offers before the official liquidator to participate in the bid and the person who will make the highest bid must be prepared to deposit Rs. 10,00,000 as minimum immediately. Post this matter on April 25, 1991, at 2.15 p.m."
Company Application No. 452 of 1991 was filed by the applicant herein to confirm the sale of land, building and machinery, etc., belonging to cauvery Spinning Mills at Rs. 2,80,00,000 being the highest bid received by the learned official liquidator pursuant to the orders of this court is Company Application No. 1561 of 1990. This court has directed the official liquidator to accept the tender of the applicant herein for the purchase of the mill in question belonging to the company in liquidation situated at Cauvery Nagar, Pudukottai, for Rs. 2,80,00,000. In the said order, the applicant has also been directed to deposit a sum of Rs. 56 lakhs which is 20 per cent. of the sale price on or before May 3, 1991, and also directed the payment of balance of the sale price on or before June 14, 1991. The order dated April 25, 1991, of my learned brother, Maruthamuthu J., is reproduced hereunder :
"Today when the matter was taken up Senthel Building Manufacturing Co. (P.) Ltd., Coimbatore, which offered Rs. 1,89,09,699, is not present in court. No other offerer was present and it is only Mr. T. Velusamy, who has made the highest offer for a sum of Rs. 2,80,00,000 is present and is represented by a counsel. Since there is no other offer excepting for a sum of Rs. 2,80,00,000 by T. Velusamy, which is the highest, the said offer of T. Velusamy is ordered to be accepted subject to his paying a sum of Rs. 56,00,000, which is 20 per cent. of the sale price, on or before May 3, 1991. The balance of sale price shall be paid on or before June 14, 1991. Post on June 14, 1991."
3. As directed by this court, the applicant paid a sum of Rs. 56 lakhs on May 3, 1991, to the official liquidator. The earnest money deposit of Rs. 1 lakh paid by the applicant has also been adjusted towards the payment of sale consideration. However, the applicant has not paid the balance of the sale price of Rs. 2,23,00,000 till June 21, 1991, when the official liquidator filed his further report in Company Application No. 452 of 1991.
4. While so, the applicant filed Company Application No. 902 of 1991 to extend the period of payment of balance amount without interest. According to the applicant, he was unable to get credit facilities from the bank and that the Reserve Bank of India has issued instructions for credit squeeze as a result of which he was unable to get facilities from the bank and that he would be able to secure financial assistance from nationalised banks, when the credit squeeze is lifted. Therefore, he prayed that this court extend the period for payment of the balance of the sale consideration of Rs. 2.23 crores by six months so as to enable him to comply with the directions of this court.
5. The learned official liquidator filed his report dated June 28, 1991. It is stated that the sale was confirmed in favour of the applicant on the basis of tender terms and conditions and, according to clause 21 in the terms and conditions, if the applicant wants to pay the balance of the sale consideration in one of more instalments over a period which is beyond 30 days from the date of confirmation of the sale, then the applicant shall obtain prior permission of this court and for such payment, the applicant should also pay interest at 20 per cent. per annum with monthly rests from the date of confirmation of the sale till the date of final payment. It is relevant to extract certain important clauses in the terms and conditions in the matter of sale of right, titled and interest over the lands, buildings and machinery, etc., belonging to Cauvery Spinning and Weaving Mills Ltd. (In Liquidation).
6. Terms and conditions :
It the sale in favour of a tenderer is confirmed by the Hon'ble High Court, Madras, the said tenderer shall deposit 20% of his offer towards the sale consideration with the official liquidator within a period of ten days from the date of confirmation by the court, which 20% shall be in addition to the earnest money deposited in terms of tender conditions.
7. The non-payment of the above amount on confirmation within the period stipulated above will result in forfeiture of earnest money deposit. The defaulting purchaser shall also forfeit all claims to the property or any part of the sum for which it may be subsequently sold.
8. The purchaser after paying the abovesaid 20 per cent. in terms of clause 19 above shall pay the balance sale consideration within 60 days from the date of confirmation of the sale. If the balance amount is not paid within the said period of 60 days all amounts paid earlier by the purchaser shall be forfeited. If the purchaser after paying the abovesaid 20 per cent. of the sale consideration in terms of clause 19 above, wants to pay the balance sale consideration in one or more instalments over a period exceeding 30 days from the date of confirmation of sale, then the said purchaser shall obtain and he shall also pay interest at 20 per cent. per annum with monthly rests from the date of confirmation of sale till the date of final payment. The purchaser should not that any such interest payment will be added to the tender amount quoted by the purchaser and the sale price of the schedule-mentioned properties will in such an even include the tender amount plus interest paid as per the clauses. The purchaser is desirous of making the payment towards the balance sale consideration in one or more instalments over a period which is beyond 30 days from the date of confirmation of the sale. The court may at its discretion give the mill of the company in liquidation on lease to the purchaser who opts to pay the balance sale consideration in instalments till the expiry of the instalment.
9. It is also stated in the said report that the Bank of India, which was a secured creditor of the company in liquidation, has filed a suit for the amount due to them with interest at the rate of 18 per cent. annum in Suit No. 499 of 1989 which is pending before this court. The official liquidator has also stated that in the circumstances if the prayer of the applicant for extending the time for payment of the balance sale consideration is considered, then the applicant may be directed to pay interest at the rate of 20 per cent. per annum with monthly rests from the date of confirmation of the sale.
10. The applicant has also filed Company Application No. 979 of 1991 to permit him to pay the balance consideration of Rs. 2.23 crores in 80 monthly instalments. The official liquidator has filed his report, dated July 5, 1991, and submitted that a perusal of the order dated April 25, 1991, of this court in Company Application No. 452 of 1991 would reveal that this court directed the acceptance of the applicant's offer, subject to the terms of the tender clauses and that it is not open to the applicant to come and say now that the rate of interest at 20 per cent. per annum with monthly rests is exorbitant and that the said allegation in unsustainable in law and on facts. The official liquidator has reiterated that the applicant is liable to pay interest at the rate of 20 per cent. per annum with monthly rests, if he is willing to pay the balance of the sale consideration of Rs. 2.23 crores in 80 monthly instalments.
11. Company Application No. 980 was filed by the applicant herein to permit the applicant to take the mill of the company in liquidation on lease. The official liquidator filed his report dated July 19, 1991, enclosing therewith a draft lease deed as annexure A. The said application was resisted by the official liquidator by inviting the attention of this court to three important terms under which the lease can be given, viz., (a) to (c) in the report filed in Company Application No. 980 of 1991. As stated above, the draft lease deed was annexed to the said report for consideration of this court. The last of the Application No. 1180 of 1991 in the series was taken out by the applicant to modify clause 21 of the tender conditions so as to give relief in payment of interest to the applicant. The said Application No. 1180 of 1991 was strongly resisted by the official liquidator. A report dated August 8, 1991, was also filed along with the letter dated April 11, 1991, under the letter head of "N. K. Thaila Mudaliar and Sons" sent by T. Velusamy, the applicant herein, to the Official Liquidator, High Court, Madras.
12. Now, the points that arise for consideration in these applications are whether time can be extended for payment of the balance amount in 80 monthly instalments as prayed for in Applications Nos. 902 and 971 of 1991 and whether a lease of the mill, Cauvery Spinning and Weaving Mills, can be granted to the applicant to run the mill on such conditions as may be determined by this court and whether clause 21 of the tender conditions could be modified so as to give relief in payment of interest by the applicant.
13. I have heard the elaborate arguments of Mr. R. Krishnamurthy, learned senior advocate, and the learned official liquidator on various dates in Applications Nos. 902, 979 and 980 of 1991 and Mr. G. Subramaniam, learned senior advocate, and the learned official liquidator on August 8, 1991, in Company Application No. 1180 of 1991.
14. The learned official liquidator has submitted that Company Application No. 1180 of 1991 taken out by the applicant for varying or reducing the rate of interest is not maintainable since this court has already approved the tender terms and conditions and as the tender was invited on these terms and as the application and as the applicant has submitted on the basis of the said terms, it is not now open to the applicant to maintain this application at this belated stage. The learned official liquidator has also submitted that it is not now open to the applicant to seek an order for modifying clause 21 of the tender terms and conditions. It is also contended by the learned official liquidator that once the terms and conditions of the sale were approved by this court and once the sale was confirmed in favour of the applicant, it is not now open to the applicant to come forward with an application for modification of the terms and conditions and seek a direction from this court for modification of those terms and conditions and that the applicant is estopped from filing such an application at this stage. Learned senior counsel for the applicant has urged that it is always open to this court to modify any order passed by it earlier depending upon the circumstances of the case and that this court is not so powerless to modify its earlier order, if genuine and acceptable reasons are given for such modification. According to learned senior counsel, in view of the subsequent change in circumstances, the applicant was compelled to seek redressal of his genuine grievance from this court by filing the above applications. The reasons given are :
(a) The Reserve Bank of India has not lifted the credit squeeze;
(b) During the course of execution of the work, the applicant had noticed that the plant and machinery, etc., are in a dilapidated condition;
(c) On an examination of the condition of the machinery, it is seen that the applicant would require to spend a sum Rs. 50 lakhs to bring it to a running condition;
(d) Besides certain machinery is required to be replaced/repaired immediately so as to put it in a working condition and for such purpose, it has become necessary for the applicant to spend another sum of Rs. 64 lakhs to commence production at the earliest point of time.
(e) The electricity authorities for high tension power connection had informed the applicant that the erstwhile management had not rectified several defects notified by the Department and that the applicant has to carry out the said defects. In order to carry out the said defects, the applicant invited quotation from a licensed contractor, who estimated the value of rectification work at around Rs. 23 lakhs.
(f) The applicant has already paid Rs. 57 lakhs and has also spent Rs. 52 lakhs in cleaning up operations and is obtaining the electricity connection;
(e) With the background of the policy of law and the established practice in various industries, courts, insisting on a payment at 20 per cent. per annum as stated in clause 21 will work out great hardship.
Hence, it is contended that it is open to the applicant to point out that the said clause is very rigorous, even though he accepted the said clause at the time of placing the tender.
15. There is much force in the contention of learned senior counsel appearing on behalf of the applicant. He has clearly pointed out to the court the subsequent change in circumstances after the sale was confirmed in favour of the applicant. In my opinion such a claim for modification has to be considered taking into consideration the totality of the circumstances. It is true that the terms and conditions were accepted by this court and only after such acceptance, this court confirmed the sale in favour of the applicant. But that does not mean or take away the right of the applicant to seek modification of the clauses of the tender conditions or for any further direction or in any way curtail the powers of this court in modifying or altering the terms and conditions depending upon the exigencies of the circumstances.
16. It is an admitted fact that the mill in question was closed for several years and that even private parties like Karumuthu Thiagaraja Chettiar group and the Government of Tamil Nadu were unable to run the said mill due to labour problems and other reasons. The applicant had already deposited, as directed by this court, a sum of Rs. 57 lakhs within the time stipulated in the said order. It is also not denied that he had spend a sum of Rs. 52 lakhs for cleaning up operations and in obtaining the electricity connection. It is also the policy of the Government both Central and State that there must be rapid industrialisation which would ensure better employment potential and economic growth and hence the financial institutions owe a duty to extend financial assistance to the sick mills to come up and face the financial crisis to get revamped with the help of such institutions, particularly the mills situated in the most backward areas like Pudukottai.
17. It is also stated that the petitioner would require a further sum of Rs. 50 lakhs to make the mill in a running condition and that the mill was closed for several years. Besides, certain machinery is required to be required/replaced immediately, so as to put it in working condition and for that purpose, it is stated by the petitioner that it has become necessary for him to spend another sum of Rs. 64 lakhs to commence production at the earliest point of time. It is further stated in paragraph 6 of the affidavit filed in support of Company Application No. 1180 of 1991 that in order to rectify the defects in the electricity connection, he has received a quotation from a licensed contractor, who estimated the value of rectification work at around Rs. 23 lakhs. In my opinion, if the balance of consideration of Rs. 2.23 corers is required to be paid with interest at 20 per cent. per annum with monthly rests as agreed to by the applicant earlier, the applicant would be virtually driven to a desperate corner of facing a serious financial crisis, rendering it impossible to reach the target. Since the mill in question has all along been functioning as a sick mill, it would be just and proper for me to consider the request of the applicant for modification of clause 21 of the terms and conditions of the tender with regard to the payment of interest favourably. In my opinion, no prejudice will be caused to anyone, since it will benefit all the persons interested, if the applicant is allowed to restart the mill soon, which will not only provide employment to more than 650 workers, but also enable the people, who live in that most backward area to be benefited by other means. This will also enable the Bank of India, which is a secured creditor, to get early repayment. In general, the general body of creditors will also be benefited, if I allow the applicant to run the mill on the same terms and conditions as agreed to by him, of course subject to the reduction in the rate of interest.
18. In fact, as stated by the learned official liquidator in his earliest report, even though advertisements were released as directed by this court in very many English dailies, viz., The Hindu, The Indian Express, Economic Times and Financial Express and in Daily Thanthi, calling for sealed tenders for the sale of the company's property, only about 115 persons obtained from the office of the official liquidator copies of the terms and conditions and tender forms and about 35 persons alone had visited the factory premises at Pudukottai and, ultimately, the official liquidator received tenders for the purchase of the company's properties only from three persons, of which the applicant is one. In fact, the applicant has to be appreciated and encouraged for his bold decision in offering his quotation for a mill which was closed for several years and which had faced several problems for all these years. As stated above, the private parties who owned the mill earlier and the Government of Tamil Nadu who owned the mill later were unable to run the mill for several reasons.
19. Mr. G. Subramaniam, learned senior counsel appearing on behalf of the applicant, in support of his contention for the reduction of the rate of interest has placed before his court the following authorities :
Shashi Kumar v. State of Bihar , Syndicate Bank v. Swadesamitran Ltd. [1990] 1 LW 9; [1990] 1 MLJ 19, N. A. P. Alagiri Raja and Co. v. N. Guruswamy [1987] 100 LW 515; [1989] 65 Comp Cas 758 (Mad), Punjab National Bank v. Udyog Silpa Pvt. Ltd., , P. G. Rao v. Andra Bank Ltd., , Soli Pestonji Majoo v. Ganga Dhar Khemka, and Jaigobind Singh v. Lachmi Narain Ram, AIR 1940 FC 20.
Shashi Kumar's case was one directed against the judgment and order of the Patna High Court, dismissing a writ petition filed by Sashi Kumar and others/appellants. The history of the said case records how an ambitious plan devised by the Central Government for accelerating and modernising agricultural development in the villages of India and simultaneously providing employment opportunities to engineers and technically trained personnel has come to grief because of an incomplete perception of the conditions necessary for its success. The Government of India propounded a scheme for the creation of Agro Service Centres in rural areas which would provide technical services essential for accelerated rural development and for providing employment to engineers and technically trained personnel. The said scheme was launched by the Government and there was an encouraging response from the unemployed sector of engineers and technical personnel from different parts of the country. In view of the difficulties experienced by unemployed and inexperienced entrepreneurs in the business, it was though that the period of subsidy on the interest should be increased from three to five years, and the period of repayment itself should be increased up to ten years as in the case of loan and mortgage bank financing. The petitioners (in that case) filed a writ petition in the Patna High Court for declaring the Agro Service Centres of Bihar as sick industries and to secure for them the amounts envisaged in the original scheme with an extension of the period of repayment to a longer term. The writ petition was dismissed by the Patna High Court and thereafter an appeal was filed before the Supreme Court by Shashi Kumar against the State of Bihar and others. The State Bank of India, Patna, has taken the position that as it has advanced the loans to the agro engineers it was entitled to take appropriate legal measures for obtaining repayment of the loan with interest. The State Bank of India denied its liability to honour the assurances extended by the Government to the agro engineers and insisted on compliance with the terms of the contract entered into by the agro engineers with the bank. It was admitted by the bank that in accordance with the scheme of the Government of India the agro engineers would have been entitled to a subsidy at the rate equivalent to the difference between the normal lending rate of the bank and a base rate of 5 per cent. per annum, which was the maximum rate payable by the agro engineers subject to availability of the subsidy. It was also admitted that the period of subsidy was normally three years, except in backward areas, where the period of subsidy was five years. The petitioner has stated that the applications for claiming interest subsidy were in many cases not submitted. It is further stated that many agro engineers did not pay the instalments in time and in most cases not more that one or two instalments had been paid. In the result, the amount of interest kept on swelling and became payable at compound interest.
The petitioners before the Supreme Court contested the position assumed by the State Bank and asserted that the State Bank has been part and parcel of the entire Agro Service Centres scheme and that it was not open to the bank to deny its obligation of providing complete financing under the scheme. As regards the applications for the grant of interest subsidy, the petitioners affirmed that their applications were submitted to the Director of Training in the Bihar State Agro Industries Corporation and that the applications which were directly submitted to the State Bank by the entrepreneurs were turned down on the plea that the individual entrepreneurs were not regular in repayment. The Government of Bihar filed a counter-affidavit. It was stated that on a consideration of the representation of the agro service entrepreneurs the State Government was agreeable, with a view to rehabilitating these centres, to subsidise the interest according to the original scheme, to permit and also try to obtain carriage work for the Agro Service Centres and to appoint them as selling agents for seeds and also to try and obtain for them selling agency for seeds from the National Seeds Corporation, Fertiliser Corporation of India and other institutions concerned with food and fertilisers.
It was also suggested that the banks should extend the period of repayment of loans to at least eight years. A suggestion of substantial importance was that inasmuch as the banks were charging penal and compound interest from an entrepreneur who had defaulted in repayment due to non-receipt of subsidy of interest from the Government of India, the penal and compound interest should be waived by the banking department.
On the suggestion made amidst diverse versions and conflicting claims, the Supreme Court made an attempt to bring the parties together in order to evolve a solution for salvaging the Agro Service Centres or, in any event, to relieve the agro engineers from the financial burden suffered by them because of their involvement in the scheme. The task of bringing about a settlement between the parties was entrusted by the Supreme Court to Thiru K. Parasaran, the then Attorney-General of India. The proposals made by the petitioners were turned down and there was no possibility of salvaging the Agro Service Centres. The State Bank India, on the other hand, took the stand that in the case of closure of the Agro Service Centres, it would still insist on payment of the entire amount of interest due on the loans. In the meanwhile, questions were raised in Parliament on the malfunctioning of the Agro Service Centres and the Ministry of Agriculture in the Government of India explained the real position. It was stated that the Minister of State for Agriculture had requested all the Chief Ministers of the States to take steps for strengthening the Agro Service Centres and to expeditiously settle the claims of agro service entrepreneurs to interest subsidy, and also to route the distribution of important agricultural inputs to the areas where those centres were functioning to help them in getting custom hiring work. Besides, the commercial banks were instructed to waive the interest on the loans advanced to Agro Service Centres. However, during the pendency of the case before the Supreme Court, the Supreme Court permitted the banks to protect themselves by instituting suits for the recovery of the amounts alleged to be due on the basis of the loans extended by them to agro engineers. However, the Supreme Court, while disposing of the said appeal in the concluding portion of its landmark judgment, has held as under (at page 392) :
"We are of opinion that the controversy involved in the case can find an appropriate and satisfactory conclusion if the Government of India addressed itself to this problem, a problem which involves an intimate intermix of legal and sensitive human considerations, and enjoying the unique position the Government of India does in relation to the other two administrations concerned, a just and valid solution can no doubt be found. The matter has already received sympathetic consideration from the Government of India, as is evidenced by the position taken by it during the initial stages of the scheme and the parliamentary and ministerial response made by it in earlier years. We believe it would be tragic, not only for the agro engineers and technocrats in distress today but also for a scheme of great promise, put into effect with much hope, if despair was allowed to defeat it. Accordingly, while we keep these cases pending, we request the Government of India in the Ministry of Agriculture to reformulate the scheme after consultation with all the parties concerned, and giving an appropriate opportunity to the petitioners and other agro engineers and technical personnel covered by the original scheme to represent their case before it. The scheme will take into account two broad divisions, one for revival of the Agro Service Centres where that can be reasonably envisaged, and the other providing for equitable reduction in appropriate cases of the financial obligations of the entrepreneurs concerned to be extend reasonably possible where Agro Service Centres have irretrievably broken down. Upon the formulation of the scheme, it should be submitted to this court for appropriate orders disposing of these cases. We allow time up to December 31, 1985, for the purpose and adjourn the cases meanwhile. A copy of this order shall be sent forthwith to the Secretary, Ministry of Agriculture, Government of India".
20. It is seen from the above judgment that the Supreme Court, while directing the authorities to frame a scheme, has directed them to take into account two broad points :
1. Revival of the industry; and
2. Providing for equitable reduction in appropriate cases of the financial obligations of the entrepreneurs concerned to the extent reasonably possible, where Agro Service Centres have irretrievably broken down.
In my opinion, the above direction given by the Supreme Court will apply to the present case in all force. A case has been made out by the applicant in this case that the industry which was closed for the past so many years has got to be revived and rehabilitated and the financial obligations of the entrepreneurs concerned to the extent possible has to be restructured.
21. I may now refer to the Division Bench decision of our High Court, consisting of Ratnam J. and Thanikkachalam J. relied on by Mr. G. Subramaniam, learned senior counsel for the applicant and reported in Syndicate Bank v. Swadesamitran Ltd. [1990] 1 LW 9; [1990] 1 MLJ 19. In the above case, the Syndicate Bank instituted a suit in this court, praying for recovery of some amount with interest thereon at 18 per cent. per annum with quarterly rests from the date of plaint till the date of realisation. Several defences were raised by the defendant in the suit, viz., Swadesamitran Ltd., and one among them was about the rate of interest payable by the defendant from the date of the suit to the date of decree. According to the defendant, the bank was not entitled to claim interest at 18 per cent. per annum as per the contract. The defendant through their counsel made an endorsement to the effect that the plaint suit claim is agreed to and that the rate of interest alone is disputed and pursuant to the endorsement so made, the defendant also expressed its readiness to pay the entire amount due under the decree that may be passed with such rate of interest as may be fixed by the court. The court proceeded to determine the rate of interest payable by the defendant to the appellant from the date of plaint till the date of payment. The court, while doing so, fixed the rate of interest at 13 per cent. per annum and took into account the payment of a sum of Rs. 5 lakhs made by the defendant to the plaintiff and also expression of readiness and willingness to pay the balance of the amount that may be worked out after fixing the rate of interest by the court. Ultimately, the court directed the defendant to pay the plaintiff the amount claimed in the plaint with interest at 13 per cent. per annum. While matters stood thus, the Syndicate Bank preferred an appeal in this court questioning the rate of interest awarded by the court at 13 per cent. per annum and claiming that interest at 18 per cent. per annum with quarterly rests from the date of suit to the date of decree should have been directed to be paid by the defendant. It was argued on behalf of the bank, referring to section 34(1), Civil Procedure Code, that the transaction entered into by the parties was a commercial transaction with a nationalised bank and, therefore, the court should have awarded interest at the contractual rate and not at a reduced rate. Counsel for the defendant submitted that the suit was instituted on the foot of a mortgage for the recovery of the amounts due thereunder and in view of the special provisions under Order 34, rule 11, Civil Procedure Code, the proviso to section 34(1), Civil Procedure Code could not be pressed into service to claim that interest should be paid at the contractual rate, viz., 18 per cent. annum. The Division Bench of our High Court in the said judgment further held as follows (at page 22) :
"We may observe that under Order 34, rule 11, Civil Procedure Code, the court may order payment of interest as indicated thereunder. The use of the expression 'may' indicates that it is not intended that in all cases, the court is obliged to decree interest at the contractual rate. A certain amount of discretion is undoubtedly vested in the court so far as the payment of interest pendente lite and subsequent interest is concerned. If the court was bound, as claimed by learned counsel for the appellant, even under order 34, rule 11, Civil Procedure Code, to award pendente lite interest at the contractual rate, then the language employed would have been different and the expression 'may' would not at all have been used. The expression 'may' used also postulates that the court is not bound the exercise its powers relating to the award of interest and the language as it is found in Order 34, rule 11, Civil Procedure Code, can only mean that the court has a discretion to order the payment of interest either at the contractual rate or even at a rate which the court deems reasonable, having regard to the circumstances of the case."
22. Learned counsel for the applicant next relied on the decision in Jaigobind Singh v. Lachmi Narain Ram, AIR 1940 FC 20. In interpreting the provisions of Order 34, rule 11, Civil Procedure Code, the Federal Court pointed out that the special provision under Order 34, rule 11, gives a certain amount of discretion to the court in so far as interest pendente lite and subsequent interest are concerned and it is no longer absolutely obligatory on the part of the court to decree interest at the contractual rate in all circumstances, even if there be no question of the rate of interest being penal, excessive or substantially unfair.
23. The principle so laid down by the Federal Court was reaffirmed by the Supreme Court in the decision in Soli Pestonji Majoo v. Ganga Dhar, . The principle laid down in the decision referred to above was applied in Pentala Githavardhana Rao v. Andhra Bank Ltd., , and the principles laid down in Jaigobind Singh's case, AIR 1940 FC 20, were applied and followed by the Andhra Pradesh High Court in Pentala Githavardhana Rao's case, , and it was held that there is no obligation cast on the courts to award pendente lite and subsequent interest only at the contractual rates and that courts have a discretion vested so far as the interest payable subsequent to the date of suit is concerned. In the above case one of the disputes related to the rate of interest that was payable on the amount due and payable to Andhra Bank Ltd. by the contesting defendants. The rate of interest payable on the principal amount as per the contract was 10 per cent. per annum for a certain period and thereafter at 11.5 per cent. per annum on the amount in question. The court also has awarded interest as per the agreed rate till the date of redemption and, thereafter, at 6 per cent. per annum till the date of realisation. Counsel for the appellant contended that the court is not invariably bound to award interest as per the contract rate from the date of the suit and in the circumstances of the case it is reasonable and proper to fix 6 per cent. annum interest from the date of the suit. The suit was resisted by counsel for the plaintiff-bank contending, inter alia, that the rate of interest payable to the bank is controlled by the Reserve Bank which publishes the rates from time to time and the interest granted by the court below in its discretion is just and proper and not liable to be interfered with in appeal.
24. Reliance has been placed by the decree holder on the decisions of the Madras high Court in China Papinaidu v. Imperial Bank of India, and S. Rajagopalaswamy v. Bank of Karaikudi Ltd., , and a few other Judgments. The Division Bench of the Andhra Pradesh High Court, on a careful consideration of the entire material on record, held as under :
"In a recent decision of the Supreme Court in Soli Pestonji Majoo v. Ganga Dhar Khemka, , it was held, relying upon the decision of the Federal Court in Jaigobind Singh v. Lachmi Narain Ram, AIR 1940 FC 20, that it is not absolutely obligatory on the courts to decree interest at the contractual rates after the dates of redemption in all circumstances even if it is not penal, excessive or substantially unfair and the courts have got discretion so far as interest payable subsequent to the date of the suit is concerned."
25. The Division Bench of the Orissa High Court in the decision in Punjab National Bank v. Udyog Silpa Pvt. Ltd., , held as follows (headnote) :
"Order 34, rule 11, is not mandatory in character. It is open to a court to vary the rate of interest so far as the period between the date of suit and the date fixed for redemption in a preliminary decree is concerned, even in a case where interest is legally recoverable and the rate of interest is not penal or unconscionable or otherwise excessive. The decisions which seem to take a contrary view that where interest is allowed it must be allowed at the contractual rate and that the rate cannot be varied do not lay down the law correctly. As for subsequent interest, i.e., from the date of redemption fixed in the preliminary decree up to the date of payment of realisation of the mortgage money, the matter rests clearly in the domain of judgment and the grant of rate of such interest is entirely in the discretion of the court. Case law discussed."
26. We can also usefully refer to the Division Bench judgment of our High Court, consisting of the Hon'ble Mr. Justice V. Ramaswami (as he then was) and the Hon'ble Mr. Justice V. Ratnam, in Dhandayuthapani v. S. P. Krishnamurti [1987] 100 LW 515. The question for consideration in that case was whether in the case of a company which is being wound up, only the official liquidator can file an application under section 391 or even in such a case, a creditor or any class of creditors or any member of the company can file the application under section 391(1). The Division Bench held that on a prima facie view of rules 67 and 68 of the Companies (Court) Rules, 1959, it does not appear that the rules contemplate an application by a creditor or a member of the company even when the company is being wound up. The learned judges has also applied the principles laid down in the judgment in Elvoc (P.) Ltd., In re [1982] 52 Comp Cas 308 (Cal). The Division Bench was of the view that a sum of Rs. 30 lakhs can be fixed as a reasonable price and that the mill including the buildings and the lands can be sold to the appellant by private sale by the official liquidator and it will not be in the interest of the creditors, shareholders or the company to sell them by public auction. In the concluding portion of the judgment, the Division Bench, applying the principles laid down by the Calcutta High Court in Elvoc (P.) Ltd., In re [1982] 52 Comp Cas 308, held as follows :
"The question for consideration was whether the court is entitled to order a private sale of a company in liquidation as a running unit to the lessee. The learned judges posed the question as to whether the only object of such sale is to fetch the maximum price or whether the court at its discretion, having regard to the prevailing socio-economic questions which are involved in a welfare State like India, should apply the law in a Pragmatic manner having regard to the realities and interests of the public. There also the company in liquidation was given on lease to a co-operatively society which after some time asked for either renewal of the lease or alternatively for sale. The learned judges held that the only duty laid on the court is to see that a reasonable price is obtained and the rule is not so rigid that in every case it must be sold in public auction. We are in entire agreement with this view of the learned judge. Though the learned judge observed that it cannot be treated as precedent as the order is to be made on the peculiar circumstances of that particular case which has got certain exceptional features, we are of the view that the principle laid down there is very objective and could be followed even in this case."
27. The learned judges while answering the question as to whether the only object of such sale is to fetch the maximum price or whether the court at its discretion having regard to the prevailing socio-economic questions which are involved in a welfare State like India, should apply the law in a pragmatic manner having regard to the realities and interests of the public, held that the only duty laid on the court is to see that reasonable price is obtained and that the rule is not so rigid that in every case it must be sold in public auction.
28. Now, I proceed to consider what will be the rate of interest that could be awarded while modifying the tender clause 21. I find from the records and from the arguments advanced by the learned official liquidator and also the learned senior counsel appearing for the applicant that the mill which was purchased by the applicant had become a sick unit and it had also stopped its business for the last more than eight years. The highest bidder has also paid a sum of Rs. 57 lakhs as per the terms and conditions of the tender. The applicant had requested this court only either to waive the rate of interest or reduce the same and had prayed only for the exercise of the discretion of this court in the matter of rate of interest. Yet another reason which weighs in my mind in reducing the rate of interest is that the Bank of India, which is one of the secured creditors has also claimed the interest rate only at 18 per cent. per annum in the suits filed by it in C.S. Nos. 499 of 1989, 284 of 1983 in this court. I have already discussed the reasons given by the applicant praying for reduction of interest and I am convinced about the genuineness of the claim and the bona fide nature of the request of the applicant. Hence, considering the totality of the circumstances, I feel that this court can fix the interest at the rate of 18 per cent. per annum flat on the reducing balance. Further, the various judgments referred to above by me in detail in this judgment have in categorical and unmistakable terms held that it is always open to this court to vary the rate of interest even in a case where the interest is legally recoverable as per the contract and the rate of interest is not penal or unconscionable or otherwise excessive. The highest court of the land has also taken a similar view and has also issued directions for the revival of sick units, where they can be reasonably envisaged and has also issued directions for providing for equitable reduction in appropriate cases of the financial obligations of the entrepreneurs concerned to the extent reasonably possible, where such centres have irretrievably broken down. The avowed policy of the Central Government is to encourage the growth of industries which will not only contribute to the growth of economy but also generate more employment opportunities. The various circumstances discussed by me in detail would justify this court exercising its discretionary powers in favour of the applicant, which would also subserve the interest of justice. Admittedly, the applicant has been making honest and bona fide attempts in reviving an industry which remained closed for more than a decade. The applicant has been making bona fide and honest attempts in reviving a dead industry. I am fully satisfied with the bona fides of the applicant as is evident from various circumstances referred to by me. Therefore, I am of the view that this court should exercise its discretion and grant leave to the applicant who is making all attempts to restart and revive a dead textile mill. It is in the fitness of things that the court should lend a helping hand a helping hand to an entrepreneur who has provide his bona fides and made honest and sincere efforts to put the industry back on the industrial map of our State. By exercising my discretionary powers, all parties including the general body of creditors will be benefited. Thus, exercising my discretion in so far as the interest rate is concerned, I fix the same at 18 per cent. per annum flat payable on the reducing balance on the amount now outstanding from the applicant.
29. Hence, for the reasons give above, I order Company Applications Nos. 902 of 1991 and 979 of 1991 and I permit the applicant to pay the balance consideration of Rs. 2.26 crores in 80 monthly instalments.
30. In so far as Company Application No. 980 of 1991 is concerned, the official liquidator is directed to grant the lease to the applicant, subject to the important conditions as mentioned in paragraph 8 of his report dated July 19, 1991. The draft lease deed filed as annexure A to the report filed in Application No. 980 of 1991 has also been perused by me. In my opinion, the draft lease deed is in order and, hence, the same is approved. However, it is made clear that if the applicant is in arrears of rent for three consecutive months or there shall be a breach of any of the covenants by the lessee herein, then the lease is liable to be terminated and the lessor may re-enter the demised premises and determine the lease without any notice.
31. Hence, Application No. 980 of 1991 is ordered as prayed for the the official liquidator is directed to grant the lease of the mill, viz., Cauvery Spinning and Weaving Mills Ltd., to the applicant, T. Velusamy, since this court has granted permission to the applicant in Company Application No. 979 of 1991 to pay the balance of sale consideration of Rs. 2.23 crores in 80 monthly instalments commencing from December 1, 1991, onwards. It is, however, made clear that the applicant should pay the monthly instalments regularly without any default and the applicant should also pay the lease amount every month to the official liquidator without any default.
32. For the reasons stated above, Company Application No. 1180 of 1991 is also ordered and clause 21 of the tender condition, directing the applicant to pay interest at the rate of 20 per cent. per annum with monthly rests is modified and the applicant shall pay interest at 18 per cent. per annum flat on the reducing balance from August 1, 1991.
33. For the foregoing reasons mentioned above, all the applications are ordered as indicated above.