Gujarat High Court
Gujarat Industrial Cooperative Bank ... vs The Gujarat Industrial Investment ... on 8 February, 2022
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 14540 of 2017
With
CIVIL APPLICATION (FOR JOINING PARTY) NO. 1 of 2018
In
R/SPECIAL CIVIL APPLICATION NO. 14540 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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GUJARAT INDUSTRIAL COOPERATIVE BANK LTD
Versus
THE GUJARAT INDUSTRIAL INVESTMENT CORPORATION LIMITED & 4
other(s)
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Appearance:
MR JB DASTOOR(239) for the Petitioner(s) No. 1
MR PRAVIN P PANCHAL(2059) for the Respondent(s) No. 5
MR RD DAVE(264) for the Respondent(s) No. 1,2
MR. ARCHIT P JANI(7304) for the Respondent(s) No. 5
NOTICE SERVED BY DS for the Respondent(s) No. 3,4
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 08/02/2022
ORAL JUDGMENT
1. Heard learned advocate Mr. J.B.Dastoor for Page 1 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 the petitioner, learned advocate Mr. R.D.Dave for respondent No.2, learned advocate Mr. Pravin Panchal for respondent No.5 and learned Senior Advocate Mr. Navin Pahwa for learned advocate Ms. Sangita Pahwa for the applicant of the Civil Application through video conference.
2. By this petition under Article 226 of the constitution of India, the petitioner has prayed for the following reliefs:
"A. Your Lordships be pleased to allow this petition;
B.Your Lordships be pleased to issue a writ of mandamus or certiorari or any other writ direction or order in the nature of mandamus or certiorari directing the respondents to release the share of interest amount of petitioner of Rs. 185.87 Lakh along with accrued interest within stipulated time period.
C.Your Lordship be pleased to grant any other further relief Your Lordship deems fit, just and proper in the interest of justice."
3. The brief facts of the case are that the petitioner provided financial assistance to respondent No.4-M/s. Jayswal Pharma Chem Limited.
Page 2 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 3.1 The respondent No.1 to 3 being Gujarat Industrial Investment Corporation Limited [GIIC], Gujarat State Financial Corporation [GSFC] and Stressed Assets Stabilization Fund [SASF] respectively also advanced financial assistance to respondent No.4-Jaiswal Pharma Chem Limited.
3.2 Respondent Nos.1 and 2 are the Financial Corporations under the provisions of section 2(b) of the State Financial Corporation Act, 1951 [for short 'the SFC Act, 1951'] and are established under section 3 of the SFC Act,1951 as the State Government by notification in Official Gazette has established Financial Corporations for the State.
3.3 The respondent No.4-M/s. Jaiswal Pharma Chem Ltd had mortgaged land and building and the plant and machinery was also hypothicated with respondent No.1 and 2.
3.4 Respondent No.4-M/s. Jaiswal Pharma Chem Ltd. failed to re-pay the outstanding dues of the petitioner as well as respondent Nos. 1 to 3. Respondent Nos. 1 and 2 therefore agreed that loan amount would be recovered from the sale of the land, building plant and machinery of respondent No.4-company in Page 3 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 exercise of powers conferred under section 29 of the SFC Act, 1951.
3.5 Respondent Nos. 1 and 2 therefore issued advertisement for the sale of the assets i.e. land and building which was mortgaged as well as the plant and machinery which was hypothicated by respondent No.4 while exercising powers under section 29 of the SFC Act, 1951 by issuing an advertisement dated 07.04.2003.
3.6 The petitioner challenged the action of issuance of advertisement by respondent Nos. 1 and 2 by preferring Special Civil Application No. 5550 of 2003 before this Court. However, the said petition was dismissed by order dated 02.05.2003 on the ground that there was no material on record even to prima facie show that the petitioner bank had charge over any of the plant and machinery and building of respondent No.4- company at Ankeshwar, GIDC. It was also observed in the order passed by this Court that the petitioner-Bank did not make any effort to recover its dues from the company and no action whatsoever was taken by the petitioner-Bank against respondent No.4- Page 4 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 company. The petition was therefore dismissed holding that the same was frivolous and filed with an oblique motive by the petitioner.
3.7 The petitioner thereafter within few days from the order passed by this Court on 02.05.2003 moved Board of Nominees- Arbitration Tribunal on 21.05.2003 to initiate arbitration proceedings against respondent No.4-company which was registered as Arbitration Case No. 841 of 2003 and subsequently registered as Arbitration Case No. 20 of 2005.
3.8 Initially, the Arbitrator granted ad interim injunction restraining respondent Nos. 1 and 2 from dealing with the property which were subject-matter of sale by the respondent Nos. 1 and 2 under section 29 of the Act, 1951. The respondent Nos. 1 and 2 preferred Special Civil Application No. 8063 of 2003 against the interim order granted by the Arbitration Tribunal which was dismissed on 26.09.2003 on the ground that the order passed by the Arbitration Tribunal was at ex- parte ad interim stage and the question of jurisdiction was not decided by the Arbitration Tribunal.
Page 5 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 3.9 It appears that Letters Patent Appeal No. 1071 of 2003 preferred by respondent No.1 and 2 was also dismissed vide order dated 18.11.2003 wherein it was observed that the application challenging the jurisdiction of the Arbitrator to proceed against the respondent Nos. 1 and 2 under section 84 of the Multi-State Cooperative Societies Act, 2002 [for short 'the Act,2002'] was pending and therefore at interim injunction granted by the Arbitration Tribunal was not interfered with.
3.10 Thereafter, it appears that the Arbitration Tribunal by order dated 31.12.2005 rejected the application preferred by respondent Nos. 1 and 2 raising preliminary issues about the jurisdiction of the Arbitration Tribunal under section 84 of the Act, 2002.
3.11 Respondent Nos. 1 and 2 therefore preferred Special Civil Application No. 20962 of 2006 before this Court challenging the order dated 31.12.2005 passed by the Arbitration Tribunal rejecting the application of the respondent Nos. 1 and 2 raising preliminary issue about jurisdiction under section 84 of the Act, 2002.
Page 6 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 3.12 During the pendency of the Special Civil Application No. 20962 of 2006, various civil applications were filed, one of the civil application was filed by respondent No.5 herein for joining as party as well as the civil application was filed by one of the auction purchaser of the plant and machinery and land and building which are sold under section 29 of the Act, 1951 during the penency of the Special Civil Application as per the orders passed by this Court from time to time.
3.13 This Court thereafter finally decided the Special Civil Application No. 20962 of 2006 along with other Civil Applications by judgement and order dated 10.05.2013. This Court [Croam: Hon'ble Mr. Justice Paresh Upadhyay, as His Lordship was then] while allowing Special Civil Application No. 20962 of 2006 passed the following order:
"10. For the reasons recorded above, the following order is passed. 10.1 Special Civil Application No.20962 of 2006 is allowed. Impugned order dated 31.12.2005 passed by the Arbitral Tribunal is quashed and set aside. Rule made absolute with no order as to costs.
10.2 It would be open to the petitioners to proceed further with the proceedings under Section 29 of the State Financial Page 7 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 Corporations Act, 1951 in accordance with law.
10.3 Civil Application No.9630 of 2008 is allowed. The transaction of sale of properties in question to this applicant i.e. M/s.Unimark Remedies Limited, pursuant to the so called consensus projected before this Court, as reflected in the order dated 30.07.2007, and consequential advertisement dated 14.09.2007, stands cancelled. The amount of Rs.17,05,00,000/- (Rupees Seventeen Crores and Five Lacs Only) lying with the Industrial Development Bank of India in interest bearing escrow account under the orders of this Court dated 01.11.2007, recorded on Special Civil Application No.20962 of 2006, is directed to be refunded to the applicant - M/s.Unimark Remedies Limited, along with the interest accrued thereon, within a period of two months from today. M/s.Unimark Remedies Limited shall hand over the properties in question back to the petitioners within the said period two months from today. Petitioner No.1 i.e. Gujarat Industrial Investment Corporation shall act on behalf of all the petitioners in this regard. M/s. Unimark Remedies Limited is directed to abide by the concession given by it, through learned Senior Advocate Mr.Percy Kavina, with regard to giving up claim over interest, as recorded in para 8.7 above. In the eventuality of interest not payable to this applicant, the said amount earned, shall be distributed by the petitioners and original Respondent No.1, as per the arrangement that may be worked out by the Gujarat Industrial Investment Corporation.
10.4 In view of Civil Application No.9630 Page 8 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 of 2008 having been allowed, Civil Application No.1570 of 2009 filed in Civil Application No.9630 of 2008, by the same applicant, would not survive. In view of that, Civil Applications No.7370 of 2008 filed by original petitioner No.1 and Civil Application No.6583 of 2008 filed by original petitioner No.3 praying for the orders of this Court, to give them direction to execute sale deed in favour of the applicant of Civil Application No.9630 of 2008 would not survive. These three applications stand disposed of accordingly."
3.14 Thus, the respondent No.1-Gujarat Industrial Investment Corporation [GIIC] was directed to work out arrangement for distribution of the interest amount which had accrued upon the sale proceeds of Rs. 17.05 crores which was refunded to the auction purchaser.
3.15 The petitioner has therefore preferred this petition with the aforesaid prayer claiming share in the interest amount which is lying with the respondent No.1-GIIC on the basis of the minutes of the Sale Committee Meeting of Secured creditors of M/s Jaiswal Pharma Chem Ltd., Ankleshar held on 06.07.2013 regarding action to be taken pursuant to the order dated 10.05.2013 passed by this Court in Special Civil Application No. 20962 of 2006 wherein it is recorded by Page 9 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 the members i.e. GIIC Ltd, GSFC and SASF i.e. respondent Nos. 1 to 3 that the petitioner was entitled to the interest distribution of Rs. 185.87 lakh. Considering the above minutes of the meeting where the petitioner did not remain present, this petition is filed claiming the interest of Rs. 185.87 lacs which was worked out by the secured creditors of the respondent No.4-company.
4. Learned advocate Mr. Dastoor submitted that the petitioner-Bank, which is now under liquidation, has provided financial assistance to respondent No.4 to the tune of Rs. 8.18 crores as reflected in the balance-sheet of respondent No.4 for the year ending on 31.03.2005 and therefore, the petitioner is entitled to a proportionate share in the interest amount which is lying with respondent Nos.1 to 3 as the same was not refunded to the auction purchaser as recorded by this Court in the order dated 10.05.2013.
4.1 It was therefore submitted by learned advocate Mr. Dastoor that the petitioner being a secured creditor of the respondent No.4-company is entitled to the share in the interest amount.
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5. On the other hand, learned advocate Mr. R.D.Dave appearing for the respondent Nos.1 and 2 submitted that as directed by this Court in the judgement dated 10.05.2013, the respondent No.1-GIIC has to make arrangement for disbursement of the accrued interest upon Rs. 17.05 crores and accordingly, respondent No.1 has obtained a report from the Chartered Accountant. It was submitted that the petitioner has never submitted any claim for share in the interest amount and therefore, the claim of the petitioner is not considered by the respondent No.1 for disbursement of the interest.
5.1 It was submitted that respondent Nos. 1to 3 were in possession of the assets of the respondent No.4 under section 29 of the SFC Act, 1951 and therefore, respondent Nos. 1 to 3 are the only secured creditors which are entitled to the proceeds of sale of the assets which are taken in possession under section 29 of the Act, 1951.
5.2 Learned advocate Mr. Dave further submitted that Letters Patent Appeal filed against the judgement and order dated 10.05.2013 has also been dismissed and therefore the judgement and order dated Page 11 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 10.05.2013 has achieved finality. It was therefore submitted that unless and until the claims of the respondent Nos. 1 to 3 are ascertained by the Sale Committee, the petitioner cannot claim any share in the interest amount as it did not have charge over the plant and machinery, land and building of the respondent No.4 company at GIDC, Ankleshwar which were the subject- matter of the auction sale.
5.3 Learned advocate Mr. Dave relied upon the decision in case of Haryana Financial Corporation and anr vs. Jagdamba Oil Mils and anr reported in 2002 3 SCC 496 in support of his submissions.
6. Learned Senior advocate Mr. Navin Pahwa appearing for the applicant in Civil Application No. 1 of 2018 [Old No. Civil Application No. 1665 of 2018] submitted that the applicant has filed this application for joining as respondent No.6 in the Special Civil Application as the applicant is having decree against the respondent No.4-Company and therefore, the applicant is entitled to the share in the amount of interest which is lying with the respondent No.1-GIIC.
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7. Similar claim is also made by learned advocate Mr. Pravin Panchal who appears for respondent No.5.
8. Considering the submissions made by learned advocates for the respective parties and on perusal of the judgement and order dated 10.05.2013 passed in Special Civil Application No. 20962 of 2006, it emerges as a matter of fact that the respondent Nos. 1 to 3 were having possession of the land and building and plant and machinery of respondent No.4-Company under section 29 of the SFC Act,1951.
9. Sub-Sections (1) and (2) of section 29 of the Act, 1951 reads as under:
"29. Rights of Financial Corporation in case of default.--(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof 1 [or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the 2 [right to take over the management or possession or both of the industrial concerns], as well as the 3 [right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.Page 13 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022
C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 (2) Any transfer of property made by the Financial Corporation, in exercise of its powers 4 *** under sub-section (1), shall vest in the transferee all rights in or to the property transferred 5 [as if the transfer] had been made by the owner of the property."
10. Thus, respondent Nos. 1 to 3 were having possession of the land and building mortgaged and the plant and machinery which were hypothicated by respondent No.4 so as to recover the outstanding dues by selling the property in question.
11. It appears that during the pendency of the Special Civil Application No. 20962 of 2006, a joint meeting was held on 12.04.2007 by respondent No.1 for the purpose of the disposal of the assets of respondent No.4- company to appoint the sale committee and accordingly, the order dated 30.07.2007 was passed by this Court for sale of the assets of the company by the Sale Committee by inviting tender for sale. Thereafter, on 01.11.2007, the following order was passed:
"(1) In compliance with the order dated 30.07.2007 the Sale Committee, through its Chairman, has placed on record report dated 23.10.2007, the sale procedure evolved by the Sale Committee and the auction sale conducted pursuant thereto Page 14 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 has been placed on record and it is stated that the highest offer received by the Sale Committee was of M/s. Unimark Remedies Limited at a sum of Rs.17,00,00,000/- (Rupees Seventeen crores). Accordingly, the chairman of the Sale Committee has prayed for confirmation of the sale in favour of the highest bidder.
(2) Mr.Tushar Mehta, learned advocate appearing on behalf of the highest bidder, states, under instructions, that to the suggestion made by the Court the highest bidder has responded and raised the offer amount to a sum of Rs.17,05,00,000/- (Rupees Seventeen crores Five lacs).
(3) In the circumstances, the Sale Committee is permitted to confirm the sale at a figure of Rs.17,05,00,000/-
(Rupees Seventeen crores Five lacs) and complete remaining formalities for completing the sale in accordance with law, within the schedule provided in terms and conditions of sale. The amount of sale proceeds shall be deposited in escrow account to be maintained with IDBI Bank, Ahmedabad as per minutes of the Sale Committee meeting held on 24.08.2007, more particularly Paragraph No.15 thereof. The Sale Committee shall ensure that the account which is opened with IDBI Bank is an interest bearing account and the interest which accrues on the amount deposited in the account shall also be deposited in the same account, till the parties are in a position to ensure disbursement of the amount."
12. It appears that thereafter, the respondent No.1 raised objections with regard to Page 15 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 execution of the sale deed and the auction purchaser was joined as party respondent who also preferred a Civil Application No. 9630 of 2008 with a request to cancel the auction sale and refund the amount. Another Civil Application No. 13513 of 2010 was also filed to review order dated 01.11.2007 which was rejected by order dated 25.11.2010. Letters Patent Appeal No. 557 of 2011 was preferred which was also disposed of by order dated 11.04.2012 with joint request to hear the Special Civil Application No. 20962 of 2006 along with all other applications finally.
13. In such circumstances, this Court while allowing Special Civil Application No. 20962 of 2006 held that the Arbitration Tribunal has no jurisdiction under section 84 of the Act, 2002 and therefore, the sale which took place during the pendency of the Special Civil Application No. 20962 of 2006 was also cancelled and the amount of Rs. 17.05 crores which was kept in Escrow Account with IDBI Bank was also ordered to be refunded to the auction purchaser. The auction purchaser on condition of not litigating further waive the interest accrued upon the amount of Rs. 17.05 crores.
14. This Court while disposing of Civil Application No. 9630 of 2008 observed that the Page 16 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022 C/SCA/14540/2017 JUDGMENT DATED: 08/02/2022 amount of interest which was not payable to the auction purchaser is to be disbursed between the parties as per the arrangement that may be worked out by respondent No.1- GIIC.
15. It is also pertinent to note that the Division Bench of this Court vide judgement and order dated 06.10.2016 passed in Letters Patent Appeal No. 834 of 2013 and 1031 of 2013 filed by the petitioner has confirmed the judgment and order dated 10.05.2013. The Division Bench while upholding the order passed by the learned Single Judge with regard to powers under section 29 of the SFC Act, 1951, having edge over the recovery of the dues by involving powers under section 84 of the Act, 2002, also held that under the SFC Act of 1951, statutory right, independent of and to the extent of inconsistency contained in any provisions of the Act, 2002, though containing restrictive non-obstante clause without any specific provision of overriding effect over other clause unlike the SFC Act of 1951, exercise of powers under section 29 of the SFC Act,1951 for recovery of the financial dues by respondent Nos. 1 to 3 shall prevail over the proceedings undertaken by the petitioner under section 84 of the Act, 2002.
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16. In such circumstances, the petitioner cannot claim as a matter of right any share in the interest earned over the amount of sale proceeds deposited by the auction purchaser during the pendency of the Special Civil Application No. 20962 of 2006.
17. However, as the petitioner has not raised the claim in the share of the interest which was earned on the amount of 17.05 crores during the pendency of the Special Civil Application No. 20962 of 2006, the petitioner can raise such claim before the GIIC as directed by this Court in para No. 10.3 in the judgement and order dated 10.05.2013.
18. In view of the above foregoing reasons, the petition is devoid of merits and is accordingly dismissed. The claim of respondent No.5 as well as the applicant of Civil Application No. 1 of 2018 would also not survive in view of the finality of the judgement and order dated 10.05.2013 passed by this Court in Special Civil Application No. 20962 of 2006. Civil Application stands disposed of accordingly. Rule is discharged.
(BHARGAV D. KARIA, J) JYOTI V. JANI Page 18 of 18 Downloaded on : Sun Apr 24 12:14:34 IST 2022