Gujarat High Court
O.L vs Manager on 22 March, 2011
Author: K.A.Puj
Bench: K.A.Puj
Gujarat High Court Case Information System
Print
OLR/12/2006 47/ 56 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
OFFICIAL
LIQUDATOR REPORT No. 12 of 2006
WITH
COMPANY
APPLICATION No. 575 of 2006
IN
OFFICIAL
LIQUDATOR REPORT No. 12 of 2006
For
Approval and Signature:
HONOURABLE
MR.JUSTICE K.A.PUJ
Sd/-
====================================
1.
Whether
Reporters of Local Papers may be allowed to see the judgment ?
YES
2.
To
be referred to the Reporter or not ?
YES
3.
Whether
their Lordships wish to see the fair copy of the judgment ?
NO
4.
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
NO
5.
Whether
it is to be circulated to the civil judge ?
NO
====================================
O.L
OF COMMERCIAL AHMEDABAD MILLS LTD.-Applicant
Versus
MANAGER,
STATE BANK OF INDIA & 7 - Respondents
====================================
Appearance
:
MR SN SHELAT, SENIOR ADVOCATE WITH
MR
JS YADAV for Official Liquidator.
MR RM DESAI for Respondent No.
1.
MR BHARAT JANI for Respondent No. 2.
NOTICE SERVED for
Respondents : 3 - 5.
MR DS VASAVADA for Respondent No. 6.
MR
NAVIN K PAHWA for Respondent No. 7.
MR SUNIT SHAH, GP WITH MR
PARIKH, AGP for Respondent No.
8.
====================================
CORAM
:
HONOURABLE
MR.JUSTICE K.A.PUJ
Date
: 28/03/2008
COMMON ORAL JUDGMENT
The Official Liquidator has filed this report as well as Company Application and since common issue is involved in both the matters, the same are heard together and are being disposed of by this common judgment and order.
In OLR No. 12 of 2006, the Official Liquidator has prayed for ratification of his action in impleading the Secretary, Government of Gujarat, Industries and Mines Department, Gandhinagar as party ? respondent in the present report. He has also prayed for confirmation of sale of land admeasuring approximately 27,741 Sq. Mts. situated at Survey Nos. 39 & 41, Town Planning Scheme No. 14, Final Plot No. 24 of Dariapur ? Kazipur, Ahmedabad, except records of the Company in liquidation, in favour of Shri Nilesh Jhalani, Shriram Bhavan, Goshala Road, Ratlam, M.P. for Rs.5.55 Crores on the terms and conditions specified in the tender document produced at Annexure F to his report. He has also prayed for ratification of his action of making payment to the Advertising Agency, namely, Navnitlal & Company for Rs.38,022/- from the funds available with his office and he has also prayed for permission to make payment of Rs.25,000/- to the Valuer Shri Hasmukh C. Patel towards valuation charges.
This Court has issued notice on 03.03.2006. On 01.05.2006, the Court has passed a detailed order in view of the objections raised by the purchaser on the basis of the stand taken by the State Government that the State Government has taken the possession of the property somewhere in the year 1999 by invoking the provisions contained in Urban Land (Ceiling & Regulation) Act, 1976. The Court, therefore, directed the State Government to file its affidavit pointing out that what would be the effect of the Repealing Act and how the State Government entered in possession when the property was in possession of the Court through the agency of the Official Liquidator.
On behalf of the State Government, an affidavit was filed by the Deputy Collector (ULC), Ahmedabad on 28.06.2006. An affidavit-in-rejoinder is filed by one Mr. Sudama Ramkuber Dube, a watchman of the Company in liquidation, in response to the affidavit-in-reply filed by the State Government. The Official Liquidator has also filed his further report on 05.09.2006 taking note of the fact stated and the averments made in the affidavit-in-reply filed on behalf of the State Government and, inter alia, praying for the direction, clarification and declaration that so-called possession taken by the ULC authorities under order of April 1991 passed by the Competent Authority and Deputy Collector, is illegal and contrary to law and seeking direction to the State Government to remove its attachment from the revenue records so that he could go ahead with the liquidation proceedings and could dispose of the land of the Company in favour of the highest bidder.
During the pendency of the above report, as per the advice received by the Official Liquidator, he has filed Company Application No. 575 of 2006 and in the Judge's Summons taken out therein, he has prayed for quashing and setting aside the action of the State Government of taking possession of the land belonging to the Company in liquidation and praying for the declaration that a piece of land admeasuring about 26721 Sq. Mts. situated at Survey Nos. 39 & 41, Town Planning Scheme No. 14, Final Plot No. 24 of Dariapur ? Kazipur, Ahmedabad is the property of the Company in liquidation and it cannot be treated as surplus land. The Official Liquidator has also prayed for removal of the attachment from the revenue records on the said land.
The brief facts giving rise to the report as well as Company Application are that by an order dated 11.10.1989 passed by this Court in Company Petition No.117 of 1989, Commercial Ahmedabad Mills Limited has been ordered to be wound up and the Official Liquidator attached to this Court was appointed as the Liquidator of the said Company with all usual powers and under the provisions of the Companies Act, 1956 and accordingly, the Official Liquidator has taken the possession of all available assets of the Company in liquidation on 04.12.1989. As per the order passed by this Court in Company Application No.208 of 1997 on 02.04.1997, the Sale Committee was constituted under the Chairmanship of the Official Liquidator and representatives of the Secured Creditors as members of the said Committee for disposal of the assets and properties of the Company in liquidation. On 01.02.1998, the valuation of the movable and immovable assets and properties of the Company was made and thereafter on 05.09.2005, the re-valuation of the land of the Company was made. On 03.02.1999, as per the order passed by this Court in OLR No. 7 of 1999, the movable assets i.e. plant, machineries and other movables excluding building structure, records and land of the Company were sold and sale was confirmed in favour of the successful bidder. Upto 15.06.2005, various meetings of Sale Committee took place for deciding the issue of sale of land and on 15.06.2005, it was decided to have revaluation of the land. Accordingly, re-valuation was made on 05.09.2005. On 16.01.2006, advertisement was issued by the Official Liquidator for and on behalf of the sale committee in newspaper inviting offers for purchase of land of the Company. On 30.01.2006, auction was conducted by the Official Liquidator and the highest offer for purchase of land of the Company was received. The Official Liquidator has filed this report on 13.02.2006 for confirmation of sale of land in favour of the successful bidder.
It is at that stage the said successful bidder has pointed out to the Court that the Competent Authority under the ULC Act had taken possession of surplus land of the Company in liquidation and, therefore, Official Liquidator has joined the State Government as party in the proceedings wherein the Deputy Collector, ULC, Ahmedabad has vide affidavit dated 28.06.2006 placed on record copy of the order passed by the Competent Authority and Deputy Collector dated 06.04.1991 and that is how the Official Liquidator came to know that ULC order has been passed for land in question and for the purpose of challenging the said order, Company Application No.575 of 2006 was filed by him on 03.11.2006.
Mr. S. N. Shelat, learned Senior Counsel appearing with Mr. J. S. Yadav, learned advocate for the Official Liquidator has submitted that the State Government in its affidavit-in-reply has stated that the land of the Company in liquidation admeasuring about 26,721 Sq. Mts. Was declared as surplus and possession of which has been taken on 15.05.1992 after issuance of notices under Section 10 (1) and 10 (3) of the ULC Act. He has submitted that this action of the State Government is absolutely illegal, contrary to law and evidence on record and is violative of principles of natural justice. He has further submitted that the physical possession of the land was never taken by the State Government. He has further submitted that the land in question is in custody of this Court from the date of presentation of petition i.e. since 1989 and the possession is with the Official Liquidator under the provisions of the Companies Act, 1956 with effect from 04.12.1989. The ULC authorities have not taken leave or permission of this Court before taking any action under the ULC Act and hence, the action on the part of the ULC Authority of taking the alleged possession is null and void. He has further submitted that the Company in liquidation came to be formed and construction on the land in question started for establishment of a textile Mill. Initially, the said Company was having some construction and thereafter the full-fledged industrial concern was started with various departments. In support of this contention, an affidavit was filed by Shri Sudama Ramkuber Dube, an ex-employee who was working in the said Mill since 1960 and after winding up of the Company, he was security In-charge duly appointed by the Official Liquidator.
Mr. Shelat has further submitted that after the winding up proceedings, the Official Liquidator had an occasion to have valuation of plant and machineries and other movables including building superstructure and land of the Company on 01.12.1998 and while doing the said valuation of the property, Shri Hasmukh C. Patel, Valuer had drawn lay out plan of the existing construction. The documents evidencing the facts have already been produced with the report of the Official Liquidator. From the lay out plan, it is clear that there were various departments operating in the Mills, which included employment of approximately 2560 workers round the clock for 24 hours. The strength of these workers itself suggests the quantity of construction on the land in question and inbuilt textile units having construction. Mr. Shelat has further submitted that in the process of winding up of the Company, confirmation of sale of building superstructure, except T.K. Office, records and compound wall, was done at Rs.74.85 Lacs. Though the Official Liquidator was in receipt of the notices referred to in the affidavit-in-reply filed on behalf of the State Government, the Official Liquidator vide letter dated 26.02.1992 informed the ULC authorities to refer to the provisions in Section 456 (2) and 446 of the Companies Act, 1956. He has, therefore, submitted that the acquisition, if any, initiated by ULC is null and void against the Official Liquidator and hence, the attachment made by the ULC authorities is required to be removed from the revenue records of the Company in liquidation. Mr. Shelat has further submitted that as per the say of the State Government, the land admeasuring 26,721 Sq. Mts. of Survey Nos. 39 & 41 is vested in the State Government. However, the Official Liquidator has put on sale the land admeasuring about 27,741 Sq. Mts. Hence, only 1,020 Sq. Mts. of land is available with the Official Liquidator for disposal of the same. He has, however, submitted that the statement made by the State Government is absolutely incorrect and as per the provisions of the ULC Act, the State Government is authorized to clear only the vacant land. But as such, there was no open vacant land and the Company was having construction admeasuring about 18,450 Sq. Mts. and there was no open piece of land at all. He has also submitted that the rest of the land was being used by the Company as its internal road, parking, storing of unfinished goods, waste machineries and other waste articles and goods and, therefore, if at all some land is open, the same land will be land appurtenant to the land and, therefore, it will stand excluded from application of ceiling limits under ULC Act.
Mr. Shelat has further submitted that as per the provisions contained in the Act to repeal the Urban Land (Ceiling & Regulation) Act, 1976, where, any land is deemed to have vested in the State Government under sub-Section (3) of Section 10 of the Principal Act but possession of which has not been taken over by the State Government or any person duly authorized by the State Government in this behalf or by the competent authority and any amount has been paid by the State Government with respect to such land, then such land shall not be restored unless the amount paid, if any, has been refunded to the State Government. Based on this provision, Mr. Shelat has submitted that the possession of the land is neither with the State Government or any person duly authorized by the State Government or any amount has been paid by the State Government with respect to the land to the Official Liquidator or to any other person or authority under intimation to the Official Liquidator. He has further submitted that the Official Liquidator has been regularly incurring expenses towards security charges to the watch and ward staff of the Company for safeguarding the assets of the Company from the date of winding up order and has also been regularly paying the security expenses to the watch and ward staff. Thus, it cannot be said that the possession of the land in question was taken by the State Government.
In support of his submission that the State Government has initiated the proceedings under ULC Act without the leave of this Court under Section 446 of the Act and hence, the said proceedings are null and void and deserve to be quashed and set aside, Mr. Shelat relied on the decision of the Hon'ble Supreme Court in the case of Kanhaiyalal V/s. Dr. D. R. Banaji and others, AIR 1958 S.C. 725 wherein while considering the provisions contained in Order 21, Rule 52 of Code of Civil Procedure, the Court observed that Order 21, R. 52, Civil P. C. requires that where the property is in the custody of any Court or Public Officer, attachment shall be made by a notice to such Court or officer. But the absence of such a notice would not render the sale void ab initio, because the jurisdiction of the Court or the authority ordering the sale, does not depend upon the issue of the notice of attachment. It is settled law that proceedings taken in respect of a property which is in the possession and management of a Receiver appointed by Court under O. 40, R. 1, Civil P. C., without the leave of that Court, are illegal in the sense that the party proceeding against the property without the leave of the Court concerned, is liable to be committed for contempt of the Court, and that the proceedings so held, do not affect the interest in the hands of the Receiver who holds the property for the benefit of the party who, ultimately, may be adjudged by the Court to be entitled to the same. The Court further held that the general rule that property in custodia legis through its duly appointed Receiver is exempt from judicial process except to the extent that the leave of that Court has been obtained, is based on a very, sound reason of public policy, namely, that there should be no conflict of jurisdiction between different Courts. If a Court has exercised its power to appoint a Receiver of a certain property, it has done so with a view to preserving the property for the benefit of the rightful owner as judicially determined. If other Courts or Tribunals of co-ordinate or exclusive jurisdiction were to permit proceedings to go on independently of the Court which has placed the custody of the property in the hands of the Receiver, there was a likelihood of confusion in the administration of justice and a possible conflict of jurisdiction.
Mr. Shelat further relied on the decision of the Hon'ble Supreme Court in the case of Everest Coal Company Private Limited V/s. State of Bihar and others, AIR 1977 S.C. 2304 wherein it is held that when a Court puts a Receiver in possession of property, the property comes under Court custody, the Receiver being merely an officer or agent of the Court. Any obstruction or interference with the Court's possession sounds in contempt of that Court. Any legal action in respect of that property is in a sense, an interference and invites the contempt, penalty of likely invalidation of the suit or other proceedings. But, if either before starting the action or during its continuance, the party takes the leave of the Court, the proceeding may continue to a conclusion on the merits. In the ordinary course, no Court is so prestige-conscious that it will stand in the way of a legitimate legal proceeding for redressal or relief against its Receiver unless the action is totally meritless, frivolous or vexatious or otherwise vitiated by any sinister factor. Grant of leave is the rule, refusal the exception. After all, the Court is not, in the usual run of cases, affected by a litigation which settles the rights of parties and the Receiver represents neither party, being an officer of the Court. For this reason, ordinarily the Court accords permission to sue, or to continue. The jurisdiction to grant leave is undoubted and inherent, but not based on black letter law in the sense of enacted law. Any litigative disturbance of the Court's possession without its permission amounts to contempt of its authority; and the wages of contempt of court in this jurisdiction may well be voidability of the whole proceeding. Equally clearly, prior permission of the Court appointing the Receiver is not a condition precedent to the enforcement of the cause of action. Nor is it so grave a vice that later leave sought and got before the decree has been passed will not purge it. If, before the suit terminates, the relevant Court is moved and permission to sue or to prosecute further is granted, the requirement of law is fulfilled. Of course, failure to secure such leave till the end of the lis may prove fatal.
Mr. Shelat further relied on the decision of the Hon'ble Supreme Court in the case of S. V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land & Mills Co. Ltd. (In Liquidation) V/s. M. Deshpande, Income Tax Officer, Companies Circle I (8) Bombay and another, AIR 1972 SC 878 wherein it is held that the expression "other legal proceeding" in sub-s. (1) and the expression "legal proceeding" in sub-s. (2) of S.446 of the Companies Act convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court. The Income Tax Act is a complete code and it is particularly so with respect to the assessment and re-assessment of income-tax. The fact that after the amount of tax payable by an assessee has been determined or quantified its realization from a company in liquidation is governed by the Act because the income tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceeding for computing the amount of tax must be held to be such other legal proceeding as can only be started or continued with the leave of the liquidation court under S.446 of the Act. The liquidation court cannot perform the functions of Income-tax Officer while assessing the amount of tax payable by the assessee even if the assessee be the company which is being wound up by the court. It would lead to anomalous consequences if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The Court, however, held that no execution distress or recovery can be made except after obtaining leave under Section 446 (1) of the Companies Act, 1956.
Mr. Shelat further relied on the decision of the Delhi High Court in the case of Faqir Chand Gupta V/s. Tanwar Finance Private Limited (In Liquidation) and others, 51 COMPANY CASES 60 (Delhi) wherein it is held that execution proceedings are entirely different from proceedings under the Companies Act, 1956, by the company judge under Section 446(2)(d) read with Section 518. No proceedings can be taken against the property of Company except by leave of the Court and no proceedings can be initiated after the winding up order and if any proceedings are pending at the date of the winding up order, the same cannot be continued except by leave of the Court. Further, the Company Court has been given absolute powers to entertain or dispose of any suit pending before any Court against the Company. The Court further observed that the proceedings under Section 446 read with Section 518 are independent of the proceedings under the Code of Civil Procedure, 1908, before the executing Court. If a Company Court comes to the conclusion by interpreting its own order that no leave was granted for the sale of the property of a Company, the sale shall be deemed to be void within the meaning of Section
537. The order of the executing Court confirming a sale of the property of a Company is not binding upon the Company Court but the order passed by the Company Court would be binding upon the parties and the executing Court, because the Company Judge has power to decide such a question notwithstanding any other provision contained in any other law. Hence, the Company Court has jurisdiction to determine whether the sale of the property belonging to a Company after the commencement of the winding up is in accordance with the provisions of the Act or not and if the Court finds that the same is contrary to the provisions of the Act, it has power to declare the same as null and void. The various provisions of the Act relating to winding up under the supervision of the Court are extraordinary provisions and are meant to protect the property of the Company under voluntary liquidation. The Court further held that the jurisdiction of the executing Court does not operate as res judicata because the jurisdiction of the executing Court is different from the jurisdiction of the Company Court. The executing Court has no jurisdiction to determine matters arising out of Section 518 or Section 446. It is only the Company Court which has jurisdiction to determine whether leave is to be granted by it for the sale of the property belonging to the Company.
Mr. Shelat further relied on the Full Bench decision of the Delhi High Court in the case of Life Insurance Corporation of India V/s. Asia Udyog (P.) Ltd. And others, 55 COMPANY CASES 187 wherein it is held that the object of Section 446 of the Companies Act, 1956 is to save the Company which is being wound up from unnecessary litigation and to protect its assets for equitable distribution among its creditors and its shareholders. This being the object of Section 446 of the Act, it is apparent that all those matters where the claim is of such nature which can be investigated by the winding up Court would be within the purview of Section 446. The only effect of sub-section (2) of Section 537, therefore, is that the completed transactions whether by way of sale or in execution proceedings do not become void. But if any further proceedings are to be continued after the winding up order has been passed, Section 446 will have to be complied with. Under Section 446 when a winding up order has been made no suit or other legal proceeding can be initiated against the Company except by leave of Court. No narrow construction should be placed upon the words ?Sor other legal proceeding??. A proceeding under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, is a legal proceeding. The authorities recognise that in special jurisdiction, like the I.T. Act, etc., the proceedings may be commenced without obtaining leave under Section 446 of the Companies Act. But here too it is accepted that no execution, distress or recovery can be made except after obtaining leave under Section 446 (1) of the Companies Act. The only way to reconcile the provision of Section 446 of the Companies Act and the provisions of the Public Premises Act would be to read down the power of the authorities under the Act of 1971 to deal with the matter of public premises when they are occupied by companies in winding up except by leave of Court. Hence, the leave of the winding up Court is necessary before initiating proceedings under Ss. 4 & 7 of the Public Premises (Eviction of Unauthorized Occupants) Act against a Company which is being wound up.
Mr. R. M. Desai, learned advocate appearing for State Bank of India has submitted that it is a matter of fact that even today, possession of the property in question is in the custody of the Official Liquidator and security guards are posted at the expenses of the State Bank of India and other Secured Creditors to protect the assets of the Company in liquidation. That even if it is accepted that the State Government has taken the paper possession of the property in question, the State Government has deliberately made an attempt to interfere with the possession of the Court and it constitutes contempt of Court. He has, therefore, submitted that the State Government be purged the contempt by handing over possession. In support of his submission, he relied on the decision in the case of Ram Narain Mathur V/S. Chief Justice and other Judges, AIR 1958 (PUNJAB) 445 (Head Note C). He has further submitted that under Section 446 (1) of the Companies Act, 1956 when a winding up order is made or the Official Liquidator is appointed as the Provisional Liquidator, no suit or other legal proceedings shall be commenced or if pending at the date of winding up order, be proceeded with against the Company except by leave of the Court. The proceedings under Urban Land (Ceiling and Regulation) Act, 1976 are covered under provision of Section 446 (1) of the Act. Any further proceeding including issuance of notice under Section 8 of ULC Act is a legal proceeding under Section 446 (1) of the Companies Act and as such before issuing notice under Section 8 of the ULC Act, permission of the winding up Court should have been obtained. Any proceeding continued without the permission of the winding up Court may be void or voidable at the option of the Official Liquidator. He has further submitted that the Official Liquidator has informed the State Government to obtain permission of the Company Court under Section 446 of the Companies Act, 1956 and the Government did not obtain any leave under Section 446 of the Act. Therefore, all proceedings continued by the State Government are void and the same shall be declared by the Court as null and void.
Mr. D. S. Vasavada, learned advocate appearing for the Textile Labour Association has adopted the arguments canvassed by Mr. S.N. Shelat as well as Mr. R. M. Desai and submitted that the alleged possession taken by the State Government is not legal and valid. The same is contrary to the provisions contained in the Companies Act, 1956 and since no leave is obtained from the Court before initiating any proceedings under the ULC Act, the said proceedings should be declared as null and void and the Official Liquidator may be permitted to proceed with the sale of the assets of the Company in liquidation.
Mr. Sunit Shah, learned Government Pleader appearing for the State Government has submitted that the Official Liquidator filed an application praying for removal of Government's charge over the land in question, inter alia, contending that the competent authority had while pursuing the proceedings under the provisions of ULC Act including taking possession under Section 10 (5) thereof, not taken leave of the Company Court and hence, the said action of the Government is void. He has further submitted that the State Government in response to the aforesaid Company Application has produced necessary documents to show that the Competent Authority had acted in accordance with the provisions of the ULC Act and notice and intimation were given as contemplated by the provisions of the said Act and, thereafter, had taken possession and it was not necessary to obtain leave of the Company Court for initiating and pursuing the provisions under the ULC Act, 1976. Even otherwise, the Official Liquidator having knowledge about the competent authority having taken possession of the land in question did not prefer to challenge the same for several years. Prayer for removal of the attachment is barred by limitation. Without prejudice to this contention, Mr. Shah has further submitted that the Company Court had no jurisdiction to set aside the order of the State Government and the same can be done, if required only in exercise of powers under Article 226 of the Constitution of India and not otherwise. He has further submitted that the provisions contained in Section 446 of the Companies Act, 1956 are not applicable to the proceedings under ULC Act and hence, leave is not required before initiating and/or pursuing the proceedings under the ULC Act. Even the leave of the Company Court is not required before taking possession under the provisions of the ULC Act. In support of this submission, Mr. Shah relied on the decision of the Hon'ble Supreme Court in the case of S. V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land & Mills Co. Ltd. (In Liquidation) V/s. M. Deshpande, Income Tax Officer, Companies Circle I (8) Bombay and another, AIR 1972 SC 878. He further relied on the provisions of Section 42 of the ULC Act which categorically states that the provisions of ULC Act shall prevail upon notwithstanding anything inconsistent contained in any law for the time being in force. In support of this contention, he relied on the decisions of the Hon'ble Supreme Court reported in 2003 (9) SCC 490, AIR 1979 SC 262, 2002 (4) SCC 98, 1996 (2) GLR 543, 1996 (2) GLR 739.
Mr. Shah has further submitted that the provisions of Section 446 are inconsistent with the provisions of ULC Act. In ULC Act, no permission is required from the holder of vacant land while taking possession and mere intimation is required to be given which in the facts of the present case was given. If Section 446 (1) is allowed to operate then it would result into abrogation of Section 10 (5) of ULC Act. If Section 10 (5) is allowed to operate in that case, Section 446 (1) becomes inapplicable. Therefore, both the provisions are inconsistent and hence, question arises which provision shall prevail. The Hon'ble Supreme Court has held in the case of State of West Bengal V/s. Pranab Kumar Sur and Others, reported in 2003 (9) SCC 490 that provisions of ULC Act, prevails upon the provisions of Companies Act. Therefore, there is no scope to argue that Section 446 (1) prevails upon. Even otherwise, ULC being a law later in point of time, same prevails upon Section 446 of the Companies Act, 1956 as per ratio laid down by the Hon'ble Supreme Court in the case of Allahabad Bank reported in AIR 2000 SC
490. Under the circumstances, there was no need to take leave of the Companies Court for initiating and/or pursuing proceedings under ULC Act including taking possession of the land in question, even if Official Liquidator is appointed for the Company, which was holder of the land.
Mr. Shah has further submitted that Official Liquidator is a representative of the asset of the Company and the Company Court. Notices and intimation were given. However, he has chosen not to challenge the same for a long time. Therefore, action on the part of the State Government cannot be challenged now. It is time barred. He relied upon the judgment in the case of Hariharnath and others V/s. State Bank of India reported in 2006 (4) SCC 457.
Mr. Shah has further submitted that if State Government's action is regarded as not in accordance with the provisions of the Companies Act, in that event it is voidable and such voidable action needs to be set aside by Competent Court. The Company Court is not competent to set aside void order because the word ?Sclaims?? appearing in Section 446 (2) of the Companies Act cannot be construed to recover any kind of claim. The word ?Sclaim?? is to be construed in the context of provisions of Section 446 (1). Therefore, leave is not required under Section 446 (1). It cannot be determined under Section 446 (2) of the Companies Act and, therefore, such prayer is beyond the jurisdiction of the Company Court.
Mr. Shah has further submitted that it is not necessary that all disputes where in a Company in liquidation is involved, should be proceeded with only by the leave of the Company Court. Matters where collection or distribution of assets are not involved, those which are outside the purview of the winding up Court and other course of law and those which are within the exclusive jurisdiction of other statutory bodies may not come under the purview of Section 446 of the Companies Act, 1956. For that purpose, he relied on the decision of the Kerala High Court in the case of Joshi Trading Company (P.) Ltd. V/s. Essa Ismail Sait, 50 COMPANY CASES 801 wherein the Court was considering the issue in light of the provisions contained in the Kerala Buildings (Lease and Rent Control) Act, which confers exclusive jurisdiction on the rent control court under Section 5 to determine the fair rent of buildings coming under the purview of the Act and under Section 11 to order eviction of tenants on grounds mentioned therein. Though an appeal lies to the subordinate judge the appellate authority functions as persona designata. Thus, the statute confers power on a hierarchy of officers to discharge functions, which are statutory and exclusive. The winding up court is not expected to discharge them. A proceeding for eviction not being a proceeding which can be appropriately dealt with by the winding up Court, does not come under the category of ?Sother legal proceeding?? in Section 446 (1) and, therefore, leave of the winding up Court is not necessary for proceeding with a petition filed against a Company in liquidation. The Court held that though the Official Liquidator was impleaded as the 5th respondent in the proceedings for eviction before the rent control court, he did not appear and contest the proceedings. Under Section 537 of the Act, it was open to him to obtain sanction of the Court and defend the proceedings. The Liquidator had not taken any steps to have the order of eviction vacated on the ground of absence of leave. Having allowed the rent control court to pass an order of eviction with himself on record, it was not open to the Liquidator to raise objections in execution, without getting that order vacated.
Mr. Shah further relied on the decision of the Punjab & Haryana in the case of Harbans Lal Sharma V/s. Chemical Vessels Fabricators Private Limited, 65 COMPANY CASES 506 wherein it is held that a combined reading of Sections 446 and 537 of the Companies Act made it clear that the words ?Sno suit or legal proceedings against the Company?? in Section 446 meant proceedings in which the assets or effects of the Company were involved. In the case before the Punjab & Haryana High Court, the premises had been let out to the Company and the eviction order was passed much before the winding up order. Thus, the lessee company had no more any right, title or interest in the said premises and the landlord was entitled to seek ejectment of the Company and now the Official Liquidator. The landlord ? decree holder could not be deprived of possession of the premises simply because the Judgment-debtor was brought under liquidation after the eviction order.
Mr. Shah further relied on the decision of the Calcutta High Court in the case of Official Liquidator, High Court, Calcutta V/s. Commissioner of Income-Tax, 41 COMPANY CASES 478 wherein it is held that on the scope of Section 446 (1) of the Companies Act, 1956, leave of the Court is not necessary in respect of any and every proceeding against the Company in liquidation and where leave of Court is necessary or not will depend on the nature of the proceeding against the Company in liquidation. If on a consideration of the nature of the proceeding and on a proper interpretation of Section 446 (1), the proceeding can be said to be covered by the section and to be within its scope, leave of Court is essential and the proceeding cannot be commenced or continued without obtaining such leave. Though a narrow construction should not be placed upon the words ?Sother legal proceedings?? in Section 446 (1) and leave of the Court will generally be necessary in respect of any proceeding against a Company in liquidation if the proceeding itself is directed against the estate or effects of the Company, if the proceedings be such as not to affect by itself the assets and properties of the Company in liquidation and are of such a nature which the Court is not in a position to entertain or dispose of such proceedings cannot be considered to be included within ?Sother legal proceedings?? and leave of the Court will not be necessary for the commencement or continuation of such proceeding.
With regard to the effect of Section 42 of the ULC Act is concerned, Mr. Shah has submitted that it has got an overriding effect over other laws. In support of this submission, he relied on the decision of this Court in the case of Babubhai M. Patel and another V/s. State of Gujarat, (1996) 37 (2) GLR 543 wherein it is held that there is one more important aspect which creates vulnerability to the impugned order under Section 42 of the Ceiling Act. Provisions of the Ceiling Act are given overriding effect on other laws. Once permission under Section 21 of the Ceiling Act is granted, action under the provisions of Section 65 would not assume any survival value.
Mr. Shah further relied on the decision of this Court in the case of Jitendra Chhabildas Dave and another V/s. State of Gujarat and others, (1996) 37 (2) GLR 739 wherein it is held that Section 42 of the Ceiling Act provides for giving an overriding effect to the provisions of the Ceiling Act notwithstanding anything inconsistent therewith, in any other law for the time being in force or any custom, usage or agreement or decree or order of a Court, Tribunal or other authority. In that view of the matter, even if the First Authority might have found that the disputed land was used for agricultural purpose, its finding will have no effect whatsoever in view of the overriding effect given to the Ceiling Act by virtue of Section 42 thereof.
Mr. Shah has further submitted that the report as well as the Company Application filed by the Official Liquidator seeking declaration from this Court are barred by period of limitation. In support of this submission, he relied on the decision of the Hon'ble Supreme Court in the case of State of Punjab and others V/s. Gurdev Singh and Ashok Kumar, AIR 1992 SUPREME COURT 111 wherein it is held that the party aggrieved by the invalidity of the order has to approach the Court for relief of declaration that the order against him is inoperative and not binding upon him. He must approach the Court within the prescribed period of limitation. If the statutory time limit expires, the Court cannot give the declaration sought for. Further, the words "right to sue" under Art. 113 ordinarily mean the right to seek relief by means of legal proceedings. Generally, the right to sue accrues only when the cause of action arises, that is, the right to prosecute to obtain relief by legal means. The suit must be instituted when the right asserted in the suit is infringed or when there is a clear and unequivocal threat to infringe that right by the defendant against whom the suit is instituted. When the employee is dismissed from service his right to continue in the service is infringed. If an Act is void or ultra vires it is enough for the Court to declare it so and it collapses automatically. It need not be set aside. The aggrieved party can simply seek a declaration that it is void and not binding upon him. A declaration merely declares the existing state of affairs and does not `quash' so as to produce a new state of affairs. But nonetheless the impugned dismissal order has at least a de facto operation unless and until it is declared to be void or nullity by a competent body or Court.
Mr. Shah has further submitted that if on the appointed day, the holding in the hands of its owner has excess land the situation would not alter on account of the subsequent winding up of the Company. In support of this submission, he relied on the decision of this Court in the case of Maganji Govindji (Since Dead), through his heirs and Lrs. V/s. Competent Officer and Dy. Collector, Urban Land Ceiling, Surat and another, 34 (2) GLR 1808 wherein it is held that the excess over the ceiling area has got to be determined as on the appointed day even though such holder of the land may die before the actual extent of surplus land is determined under Section 9 and notified under Section 10 (1) of the said Act. The person on whom his holding devolves on his death would be liable to surrender the surplus land as on the appointed day because the liability attaching to the holding of the deceased would not come to an end on his death. The persons who acquire interest by inheritance shall have to follow the procedure of Section 15 and if the procedure under Section 15 is not followed, statement filed under Section 6 (1) by the original holder of the land shall have to be adjudicated upon and the order shall have to be passed by the Competent Authority.
In Allahabad Bank V/s. Canara Bank and another, 2000 (4) SCC 406, the Hon'ble Supreme Court framed certain questions, more particularly, the question whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under Section 446 (2) and (3) read with Sections 529, 529A and 530 etc. of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal ? The Court held that the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) to the Recovery Officer for recovery of the debt specified in the certificate. It appears that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other Court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act. Therefore, the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant Bank is concerned. Even in regard to 'execution', the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the Banks/Financial institutions should go to the Civil Court or the Company Court or some other authority outside the Act for the actual realization of the amount. The certificate granted under Section 19(22) has to be executed only by the Recovery Officer. No dual jurisdictions at different stages are contemplated. Further, Section 34 of the Act clearly state that the RDB Act overrides other laws to the extent of 'inconsistency'. Obviously, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act.
In Omprakash B. Khare V/s. The State of Gujarat, 2004 (3) GLH 485 (GUJ.), this Court has held that mere filing of an application under Section 21 (1) of the Act, which fact is also in dispute, or mere raising an objection to the notice under Section 10 (5) of the ULC Act are not sufficient. As soon as Notification under Section 10 (3) is issued, the suit land is vested in the State Government and as soon as the possession of the suit land is taken over by the State Government, the owner of the land has lost all his rights in the suit land, till the said action is declared to be illegal or null and void by the appropriate Court, authority or tribunal. If on the date when Repeal Act has come into force, no rights are created or are in existence in favour of the owner, mere pendency of his application under Section 21 of the ULC Act would not come to his rescue as all proceedings including proceedings under Section 21 of the Act are abated.
In State of W.B. & Ors. V/s. Pranab Kumar Sur and others, (2003) 9 SCC 490, the Hon'ble Supreme Court held that pendency of proceedings under the Companies Act shall not be construed to be a bar to give effect to the provisions of the ULC Act in view of the overriding effect conferred by Section 42 of that Act. The Court further held that the contention that if the excess land was subject to encumbrance, Section 10 (3) has no application and the question of vesting does not arise has no merit. It is precisely for the purpose of freeing the land of all encumbrances, so as to facilitate absolute vesting that Sub-section (3) has been enacted. The factum of existence of encumbrances cannot be pressed into service by the landholder to prevent the application of statutory vesting.
Having heard the learned advocates appearing for the respective parties at great length and having considered relevant documents and materials in light of statutory provisions contained in the Companies Act, 1956 as well as ULC Act and authorities cited before the Court by learned advocates, the Court is of the view that relief claimed by the Official Liquidator in his report as well as Company Application needs to be refused. Questions raised before the Court for its determination are as to whether competent authority under the ULC Act was required to obtain leave under Section 446 of the Companies Act, before initiating proceedings under ULC Act, more particularly, from the stage of Section 10 (5) onwards of the Act and what would be the effect or consequences of such proceedings if leave is not obtained. The second question needs to be answered is whether alleged possession acquired by the State Government under ULC Act can be sustained despite the fact that actual and physical possession of the land in question is found with the Official Liquidator. Lastly, if the actual and physical possession is with the Official Liquidator, can it be protected by virtue of the provisions contained in the ULC Repeal Act ?
Before these questions will find their answers, a factual matrix of the case requires to be taken note of. Form No. 1 under Section 6 (1) of the ULC Act was filed by the Company in liquidation on 12/31.08.1976. Reply to this draft statement was filed by the Company in liquidation on 31.01.1983. An application filed by the Company in liquidation under Section 20 of the ULC Act was rejected on 29.06.1990. By this time, the winding up order was already passed by this Court. Notice under Section 8 (4) of the ULC Act was issued on 07.03.1991 and the same was duly served on the Official Liquidator on 19.03.1991. After issuance of notice to the Official Liquidator, the final order under Section 8 (4) of the ULC Act was issued on 25.03.1991 declaring 26,721 Sq. Mts. land of F.P. No. 23 as excess land. After declaration under Section 8 (4), Notification under Section 10 (1) came to be issued on 19.06.1991 which was published on 10.07.1991. Thereafter, Notification under Section 10 (3) of the Act came to be issued on 19.06.1991 which was published on 3.10.1991. Necessary intimation was given to Talati for introducing mutation entry in the revenue record on 11.11.1991.
It is revealed from the perusal of the record that the competent authority issued letter dated 20.02.1991 about its intendment of taking possession of the land in question. In reply thereto, the Official Liquidator had addressed letter dated 26.02.1992 quoting therein Sections 456 (2) and 446 of the Companies Act. The Competent Authority issued another letter on 05.05.1992 to the Official Liquidator informing that the possession of the land would be taken on 15.05.1992. The possession of the land was accordingly taken on 15.05.1992 by drawing Panchnama. However, the person from the office of Official Liquidator and two watchmen who were present at the site refused to sign the Panchnama. The details regarding excess land of which possession was taken were sent to Talati on 30.03.1999 and entry No. 17829 was introduced in the relevant records. Thus, from this date onwards, vesting of land is in the State Government and possession thereof is also with the State Government in Revenue records. The Official Liquidator was and ought to be aware about these facts. Despite this, it appears that he did not bring it to the notice of this Court nor to the Sale Committee. Not only this, he did not even inform the Competent Authority that he filed certain reports before this Court in relation to the land already vested in the State Government. All these facts have come to the light only when the highest bidder before the Sale Committee had raised query from the valuation report in relation to the entry introduced in village Form No.6, qua this land.
The whole case of the Official Liquidator, Secured Creditors and Textile Labour Association is based only on one issue that the Competent Authority had not obtained any leave of this Court before taking possession though stated to be on paper. The Court has to decide as to whether such permission or leave is necessary in all such cases where an authority has to take some action against the Company in liquidation and whether absence of such leave is so fatal that it invalidates the whole action which was, otherwise taken within four corners of law or the authorities taking such actions have discharged their statutory functions. Decisions are on both sides. Learned Counsels have cited various authorities which are referred to hereinabove. However, one has to see the facts of each case in light of the powers exercised by the authority under a particular statute and considering the scope of and field of operation of Section 446 of the Companies Act, 1956.
The Court is of the view that the case on hand is more nearer to the case of Allahabad Bank V/s. Canara Bank and another (Supra), wherein it is specifically held that the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of debts in any other manner and the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Similarly, in the present case, controversy arose in the context of provisions of the Urban Land (Ceiling & Regulation) Act, 1976. The primary object and purpose of this Act was to provide for the imposition of ceiling on vacant land in urban agglomeration for the buildings on such land in excess of the ceiling limit, to regulate the construction of buildings on such land and for matters connected therewith, with a view to preventing the concentration of urban land in the hands of a few persons and speculation and profiteering therein, and with a view to bringing about an equitable distribution of land in urban agglomeration to sub-serve the common good, in furtherance of the directive principles of Article 39 (b) and (c) of the Constitution of India. This Act was self-contained and comprehensive in itself and detailed procedure, powers, rights and privileges, remedies, forums for redressal of grievances etc. were prescribed. Filing of statement under Section 6 by persons holding vacant land in excess of ceiling limit, preparation of draft Statement under Section 8 as regards vacant land held in excess of ceiling limit, preparation of final statement under Section 9, acquisition of vacant land in excess of ceiling limit under Section 10, payment of amount for vacant land acquired under Section 11, constitution of Urban Land Tribunal and appeal to Urban Land Tribunal under Section 12, Second Appeal to High Court under Section 13, power to grant exemption under Section 20, disposal of vacant land under Section 23, powers and jurisdiction of competent authorities and Tribunals in Section 31 & 32, Appeals under Section 33 and Revision by State Government under Section 34 and overriding effect of the Act on other laws etc. Thus, there is no doubt that the ULC Act is a complete code and it is particularly so with respect to the determination, vesting and acquisition of excess land in urban area. The fact that after the determination of excess land of the Company in liquidation and vesting of such excess land in State Government and consequently taking possession after due notice and intimation to the Official Liquidator does not mean that such proceedings must be held to be such other legal proceedings as can only be started or continued with the leave of the Company Court under Section 446 of the Act. The Company Court cannot perform the functions of Competent Authority under the ULC Act while determining the land to be excess, vesting and acquisition thereof in or by State Government even if such person be the Company which is being wound up by the Court. It would lead to anomalous consequences if the winding up Court were to be held empowered to grant leave to start and/or to continue such proceedings and in absence of such leave, to declare such proceedings null and void.
Even otherwise, provisions of Section 42 of the ULC Act are very clear. It says that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force or any customs, usage or agreement or decree or order of a Court, Tribunal or other authority. Similar provisions are there in Section 34 of the RDB Act and while considering the effect thereof in the case of Allahabad Bank V/s. Canara Bank and another (Supra), the Hon'ble Supreme Court held that no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and recovery except as provided in the Act. The Court has, therefore, clearly held that leave of Company Court under Section 446 is not required. Moreover, effect of Section 42 of the ULC Act was examined by the Hon'ble Supreme Court in the case of State of West Bengal V/s. Pranab Kumar Sur and Others (Supra) and it was clearly held that pendency of proceedings under the Companies Act shall not be construed to be a bar to give effect to the provisions of the ULC Act in view of the overriding effect conferred by Section 42 of the Act. While taking possession legally and validly on 15.05.1992 by the Competent Authority, after giving due notice and intimation to the Official Liquidator, and after the land was duly vested in the State Government under Section 10 (3) of the Act, the Official Liquidator or for that matter, this Court cannot undo all these acts of the Competent Authority merely on the ground that the winding up proceedings are pending before this Court or that the leave of this Court was not obtained under Section 446 of the Companies Act, 1956 especially when none of these acts were ever challenged by the Company and/or the Official Liquidator before the competent forum or Court under the ULC Act.
The Court lastly considers the effect of Urban Land (Ceiling and Regulation) Repeal Act, 1999. With the passage of time in 1999, it has been considered that the Act of 1976 has become obsolete to meet the necessities of changed circumstances. On 22.03.1999, the Parliament enacted the Urban Land (Ceiling and Regulation) Repeal Act, 1999 which repealed the then existing Urban Land (Ceiling and Regulation) Act, 1976. However, the Repeal of Principal Act has not affected (a) the vesting of any vacant land under Section 10 (3), possession of which has been taken over by the State Government. This possession was never challenged by the Official Liquidator. The claim of the Official Liquidator that he was having the actual and physical possession of the land is contrary to the provisions of ULC Act or at the most he is holding this possession in Trust for and on behalf of the State Government. He cannot claim any benefit of Repeal Act on this ground. No exemption was granted under Section 20 of the ULC Act. On the contrary, such application preferred by the Company was rejected in June, 1990. Hence, there is no question of saving validity of any order granting exemption under Section 20 of the ULC Act.
There are many other decisions pressed into service by both sides. They, however, rest on their own facts and hence, the Court candidly believes that they do not render much assistance to the case of the Official Liquidator.
Taking any view of the matter, the Court is of the firm view that the Official Liquidator is not entitled to any relief or declaration prayed for by him either in his OLR or Company Application in relation to the land admeasuring about 26,721 Sq. Mts. situated at Survey Nos. 39 & 41, Final Plot No. 24 of Dariapur ? Kazipur, Ahmedabad, Town Planning Scheme No. 14, Ahmedabad. Hence, he is directed to hand over the actual and physical possession of this land to the State Government forthwith. It is, however, made clear that since the Official Liquidator has been incurring expenses during all these years for protecting this land by way of security charges, valuation, advertisement, photographer's charges etc., the State Government is hereby directed to reimburse the said expenses to the Official Liquidator. Since the possession of the land in question is ordered to be given to the State Government, there is no question of confirming the land in favour of the highest bidder. The Official Liquidator is, therefore, directed to return the amount of EMD, if it is lying with him and not returned so far. If the EMD amount is invested in FDR and the Official Liquidator has earned interest on the said EMD amount, the same should be returned to the highest bidder along with the interest that has been earned by the Official Liquidator within a period of one week from today. The Official Liquidator is, however, permitted to proceed with the sale of the remaining land of 1020 Sq. Mts. which is not declared excess land and not vested in the State Government. The action of the Official Liquidator of making payment to the Advertising Agency is hereby ratified and he is also permitted to make the payment to the Valuer, if not made so far, out of the funds available with him in the Company's account.
Subject to the aforesaid directions and observations, both these OLR as well as Company Application are disposed of.
Request for stay made by Mr. Yadav, learned advocate appearing for the Official Liquidator and Mr. D.S. Vasavada, learned advocate appearing for Textile Labour Association is rejected. Sd/-
[K. A. PUJ, J.] Savariya Top