Karnataka High Court
United Breweries (Holdings) Limited vs State Bank Of India on 6 March, 2020
Bench: Alok Aradhe, Ravi V Hosmani
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 6TH DAY OF MARCH 2020
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE RAVI V.HOSMANI
O.S.A. NO.5 OF 2017
IN
Co.P NO.162/2013
BETWEEN:
UNITED BREWERIES (HOLDINGS) LIMITED
UB TOWER, LEVEL 12, UB CITY
24, VITTAL MALLYA ROAD
BENGALURU 560001
REP BY ITS DIRECTOR.
... APPELLANT
(By Sri.C.S.VAIDYANATHAN SENIOR ADV. A/W
SRI.NAMAN JHABAKH ADV. FOR
M/S HOLLA AND HOLLA, ADV.)
AND:
1. STATE BANK OF INDIA
A BANKING CORPORATION CONSTITUTED
UNDER THE STATE BANK OF INDIA ACT,
1955 (23 OF 1995)
HAVING ITS CORPORATE CENTRE AT
STATE BANK BHAVAN
MADAME CAMA ROAD
NARIMAN POINT, MUMBAI 400021
AND HAVING ITS INDUSTRIAL FINANCE
BRANCH AT 61, RESIDENCY PLAZA
RESIDENCY ROAD, BENGALURU 560025.
2
2. AXIS BANK LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956, AND A BANKING
COMPANY WITHIN THE MEANING OF SECTION 5(C)
OF THE BANKING REGULATION ACT 1949
AND HAVING ITS REGISTERED OFFICE AT TRISHUL
THIRD FLOOR, OPP. SAMARTHESWAR TEMPLE
LAW GARDEN, ELLISBRIDGE, AHMEDABAD - 380 006
GUJARAT, INDIA.
AND HAVING ITS CORPORATE OFFICE AT
AXIS HOUSE, C-2, WADIA INTERNATIONAL CENTRE
PANDURANG BUDHKAR MARG
WORLI, MUMBAI - 400 025.
3. BANK OF BARODA
A BODY CORPORATE UNDER THE
BANKING COMPANIES (ACQUISITION AND
TRANSFER OF UNDERTAKING) ACT 1970 (5 OF 1970)
HAVING ITS HEAD OFFICE AT BARODA HOUSE
P.B.NO.506, MANDAVI, VADODARA - 396006.
ACTING THROUGH ITS BRANCH
OFFICE AT P.O.BOX 11745
SAMATA BUILDING, GENERAL BHOSALE MARG
NARIMAN POINT, MUMBAI - 400 021.
4. BANK OF INDIA
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKINGS) ACT, 1970 AND
HAVING ITS HEAD OFFICE AT
STAR HOUSE, C-5, G BLOCK
BANDRA KURLA COMPLEX
BANDRA (E), MUMBAI-400051.
AND HAVING ITS LARGE CORPORATE
BRANCH AT GROUND FLOOR
ORIENTAL BUILDING, 364
D.N. ROAD, FORT, MUMBAI-400001.
3
5. CENTRAL BANK OF INDIA
A BODY CORPORATE CONSTITUTED
UNDER THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKINGS) ACT, 1980 AND
HAVING ITS CORPORATE OFFICE AT
CHANDRAMUKHI, NARIMAN POINT
MUMBAI-560021.
AND HAVING ITS CORPORATE
FINANCE BRANCH (EARLIER KNOWN
AS INDUSTRIAL FINANCE BRANCH)
AT CHANDRAMUHI GROUND FLOOR
NARIMAN POINT, MUMBAI-560021.
6. CORPORATION BANK
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES (ACQUISITION
AND TRANSFER OF UNDERTAKING), ACT 1980
(40 OF 1980) AND HAVING ITS
CORPORATE 0FFICE AT
MANGALADEVI TEMPLE ROAD
PANDESHWAR, MANGALORE-575001
AND HAVING ITS INDUSTRIAL FINANCE BRANCH
AT RALLARAM MEMORIAL BUILDING
1ST FLOOR, CSI COMPOUND
MISSION ROAD, BENGALURU-560027.
7. THE FEDERAL BANK LIMITED
A COMPANY WITHIN THE MEANING
OF THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
FEDERAL TOWERS, ALUVA 683101, KERALA
AND HAVING ITS BRANCH OFFICE
AT ST. MARKS ROAD
9, HALCYON COMPLEX
ST.MARKS ROAD,
BENGALURU-560001.
8. IDBI BANK LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956
AND A BANKING COMPANY WITHING
THE MEANING OF THE BANKING REGULATION
4
ACT, 1949 HAVING HEAD OFFICE AT
IDBI TOWER, WTC COMPLEX, CUFFE PARADE
MUMBAI-400 005
MAHARASHTRA, INDIA
AND ACTING THROUGH ITS BRANCH GROUP FAMG
9TH FLOOR, IDBI TOWER
WTC COMPELX, CUFFE PARADE
MUMBAI-400 005.
9. INDIAN OVERSEAS BANK
A BODY CORPORATE UNDER THE
BANKING COMPANIES (ACQUISITION AND
TRANSFER OF UNDERTAKING) ACT 1970
HAVING ITS CENTRAL OFFICE AT 763
ANNA SALAI, CHENNAI-600 002
AND ITS BRANCH OFFICE AT HARIKRIPA
26-A, S.V.ROAD,
SANTACRUZ (W), MUMBAI-400 054.
10. JAMMU & KASHMIR BANK LIMITED
A BANKING COMPANY INCORPROATED
UNDER THE PROVISIONS OF THE
JAMMU & KASHMIR COMPANIES ACT
NO.XI OF 1977 (SAMVAT)
HAVING ITS REGISTERED OFFICE AT CORPORATE
HEADQUARTER, MAULANA AZAD ROAD
SRINAGAR, KASHMIR-190 001
AND ITS BANCH OFFICE AT
SYED HOUSE, 124, S.V.SAVARKAR MARG
MAHIM (WEST), MUMBAI-400 016.
11. PUNJAB & SIND BANK
A BODY CORPORATE UNDER
BANKING COMPANIES (ACQUISITION AND
TRANSFER OF UNDERTAKING) ACT, 1980
HAVING ITS HEAD OFFICE AT 21
RAJENDRA PLACE, NEW DELHI 110 008
AND HAVING AMONGST OTHERS
A BRANCH OFFICE AT J.K. SOMANI BUILDING
BRITISH HOTEL LANE, FORT, MUMBAI-400 023.
12. PUNJAB NATIONAL BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970 (5 OF 1970)
5
HAVING ITS HEAD OFFICE AT 7
BHIKAJI CAMA PLACE
NEW DELHI 110 607.
ACTING THROUGH ITS LARGE
CORPORATE BRANCH AT CENTENARY
BUILDING, 28, M.G. ROAD
BENGALURU 560 001.
13. STATE BANK OF MYSORE
A BODY CORPORATE CONSTITUTED
UNDER THE STATE BANK OF INDIA
(SUBSIDIARY BANKS) ACT, 1959
HAVING ITS HEAD OFFICE AT
KEMPEGOWDA ROAD
BENGALURU-560009
AND ITS CORPORATE ACCOUNTS BRANCH
AT NO.18, RAMANASHREE ARCADE
M G ROAD, BENGALURU-560001.
14. UCO BANK
A BODY CORPORATE CONSTITUTED
UNDER THE BANKING COMPANIES (ACQUISITION &
TRANSFER OF UNDERTAKINGS)
ACT, 1970 AND HAVING ITS HEAD OFFICE AT 10
BTM SARANI, KOLKATA-700001
WEST BENGAL, INDIA
AND ITS BRANCH OFFICE AT
IST FLOOR, 13/22, K G ROAD
BANGALORE-560009.
RESPONDENT NOS.1-14 ARE REP. BY
MR. S. RANGAVITTAL
ASSISTANT GENERAL MANAGER
AND RELATIONSHIP MANAGER AMT IV
(SMG-V), STATE BANK OF INDIA
INDUSTRIAL FINANCE BRANCH
BANGALORE.
15. EMPLOYEES OF UNITED BREWERIES
(HOLDINGS) LIMITED
REGD. OFFICE AT UB CITY
LEVEL 12, UB TOWER, 24
VITTAL MALLYA ROAD, BENGALURU-560001
REP. BY MR. SRINIVAS G, DGM (HR).
6
16. IAE INTERNATIONAL AERO ENGINES AG
OFFICE AT HOMBURGER AG
PRIME TOWER, HARDSTRASSE 201
CH 8005 ZURICH AND PRINCIPAL PLACE
OF BUSINESS AT 400 MAIN STREET
MS 12-10 EAST HARTFORD
CT 06108, USA
REP. BY ITS AUTHORIZED SIGNATORY
MS. ALICIA PERRAULT.
... RESPONDENTS
(By Sri.S.S.NAGANAND SENIOR COUNSEL A/W
SRI.S.R.TEJAS ADV. FOR DUA ASSTS., FOR R1 TO 14
SMT.LAKSHMY IYENGAR SENIOR ADV. FOR OL
SRI.D.P.SINGH ADV. FOR ENFORCEMENT DIRECTORATE
SRI.S.VIJAY SHANKAR SENIOR ADV. A/W
SRI.ARAVIND KAMATH, ADV. FOR IMPLEADING
APPLICANTS IN I.A.NO.5/2017 AND I.A.NO.6/2017
SRI.DHYAN CHINNAPPA SENIOR ADV. A/W
SMT.ANURADHA AGNIHOTRI ADV. FOR IMPLEADING
APPLICANT IN I.A.NO.3/2017)
---
THIS O.S.A IS FILED UNDER SECTION 483 OF THE
COMPANIES ACT, 1956 R/W SECTION 4 OF THE KARNATAKA HIGH
COURT, 1961, PARYING TO CALL FOR ENTIRE RECORDS OF IN
Co.P. No.162/2013. SET ASIDE THE ORDER OF THE LD. COMPANY
JUDGE IN COP No.162/2013 DATED 7TH FEBRUARY 2017. GRANT
COST OF THE PROCEEDINGS AND GRANT SUCH OTHER AND
FURTHER RELIEFS AS ARE JUST, IN THE INTEREST OF JUSTICE
AND EQUITY.
THIS O.S.A. HAVING BEEN HEARD AND RESERVED FOR
ORDERS, COMING ON FOR PRONOUNCEMENT OF ORDERS, THIS
DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
7
JUDGMENT
This appeal under Section 483 of the Companies Act, 1956 (hereinafter referred to as 'the Act' for short) has been filed against order dated 07.02.2017 passed by the Company Judge, by which the appellant has been ordered to be wound up and an Official Liquidator has been appointed as liquidator of the appellant and has been further directed to proceed in accordance with the provisions of the Act and the Company Court Rules. In order to appreciate the appellant's challenge to the impugned order, relevant facts need mention, which are set out hereinunder:
FACTUAL BACKGROUND:
2. Kingfisher Airlines Limited (hereinafter referred to as 'the KAL' for short) was a company incorporated under the provisions of the Act. Sometime in June, 2004, KAL, which was promoted by United Breweries Holding Ltd., (hereinafter referred to as 'the UBHL' for short) viz., the appellant and / or, some of its subsidiaries was incorporated as a Public Limited Company with limited liability under the Act. The KAL approached the State Bank of India and other Banks for 8 sanction of working capital and other financial assistance, which was advanced to it, between the year 2005-2010. On 21.12.2010, the lenders bank formed a consortium and restructured the loans / facilities advanced to KAL by consolidating the facilities and entering into a Master Debt Recast Agreement on 21.12.2010 itself. The KAL and Consortium of Banks and SBICAP Trustee Company Ltd., entered into a security trustee agreement on 21.12.2010 itself KAL settled a trust and appointed SBICAP as security trustee for benefit of Consortium of Banks inter alia to hold encumbrances created or to be created pursuant to the security deposits.
3. The KAL, UBHL and Kingfisher Finvest (India Ltd) entered into various hypothecation/ mortgage/ assignment agreement in favour of Consortium of Banks/ SBICAP to secure payment of loans including all interest, peace and commissions etc. The KAL provided a corporate guarantee in favour of respondent Banks by way of Corporate agreement dated 21.12.2010. Dr.Vijay Mallya also executed a personal guarantee on 21.12.2010 itself in favour of respondent No.1 9 for securing the obligations of KAL under the Master Debt Recast Agreement. On 24.12.2010, the Consortium of Banks and KFA entered into an amendatory agreement to Master Debt Recast Agreement. On account of default in repayment of the loan by KFA, its account were declared by Consortium of Banks as Non Performing Assets between the period from
02.11.2011 to 31.03.2013 and Consortium of Banks issued notices on 02.01.2012 and 02.02.2012 to UBHL, Kingfisher Finvest India Ltd., and Dr.Vijay Mallya about KFA being a Non Performing Asset. The Consortium of Banks issued a legal notice on 15.03.2013 to UBHL stating that event of default under the Master Debt Recast Agreement has occurred and the Bankers right under the pledge agreement has now become enforceable.
4. The Consortium of Banks thereafter, issued a notice on 02.04.2013 invoking the guarantees issued by UBHL, Dr.Vijay Mallya and called upon UBHL to make payment of 6493.29 Crores. On 03.05.2013, Consortium of Banks issued notices under the Securitization and Reconstruction of Financial Assets and Enforcement of 10 Security Interest Act, 2002 (hereinafter referred to as 'the Securitization Act' for short) Vijay Mallya and UBHL in which demand for payment of Rs.4895.58 Crores was made.
5. On account of non servicing of interest to the invocation of letter of credit and bank guarantees and non payment of loan installments by KFL, the Consortium of Banks classified the accounts of KAL as Non Performing Assets and invoked the guarantees given by the Company as well as personal guarantee of Dr.Vijay Mallya and by a statutory notice called upon UBHL to pay the debts due under the guarantee agreements amounting to Rs.6203.05 Crores. On failure of the company to pay the aforesaid amount, the Consortium of Banks on 25.06.2013 filed proceeding under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the Act, 1993' for short) viz., O.A.No.766/2013 before the Debt Recovery Tribunal, Bangalore against UBHL and Dr.Vijay Mallya seeking to recover a sum of Rs.6203,35,03,879.42/- as on 31.05.2013, with further interest at the rate of 15.20% with monthly interest from 2.06.2013 till payment and other 11 consequential benefits. On 21.05.2016, Directorate of Enforcement registered a case for offences under Section 13(1) read with 13(1)(d) of the Prevention of Corruption Act, against KAL, Dr.Vijay Mallya, K.Raghunathan and some officers of the Bank. On 30.03.2016, a proposal was laid to the Chairperson, SBI for settlement on behalf of Dr.Vijay Mallya, UBHL and others, which was recorded in a proceeding in SLP Nos.6828-6831/2016. On 07.04.2016, the aforesaid proposal was rejected by the Consortium of Banks, which was recorded in the proceeding before the Supreme Court and time was granted to Dr.Vijay Mallya, UBHL and others to filed their response. Dr.Vijay Mallya was further directed to disclose details of all his properties. The Supreme Court vide order dated 26.04.2016, passed in SLP © No.6828- 6831/2016 held that there are no bonafides in the offer for settlement made by Dr.Vijay Mallya and apparently the offer of settlement was made as a ploy to gain time.
6. A provisional order of attachment was made bearing PAO NO.11/2016 on 11.06.2016 by Deputy Director, Directorate of Enforcement Mumbai Zonal Office, by which 12 various immovable properties were provisionally attached. A preliminary enquiry was commenced on 19.08.2016 by the Directorate of Enforcement for offence of money laundering based on Consortium of Banks led by SBI and Directorate of Enforcement registered a case. After issuing show cause notice and conducting hearing on various dates a provisional order of assessment was passed on 03.09.2016 by Directorate of Enforcement, Mumbai by which provisionally properties were attached.
7. Thereafter, by an order passed by the learned Company Judge of this Court dated 18.11.2016 passed in COP 214/2012 and other connected petitions, the KAL was directed to be wound up. The adjudicating authority by an order dated 11.06.2016 under the Prevention of Money Laundering Act, 2002 (hereinafter referred to as 'the Act, 2002' for short) confirmed the order dated 01.12.2016. The Debt Recovery Tribunal by judgment dated 19.01.2017 allowed O.A.No.766/2013 holding KAL, UBHL, Dr.Vijay Mallya and KFIL jointly and severally liable to pay a sum of Rs.6203,35,03,879/- with interest at the rate of 11.05% per 13 annum with costs. The learned Company Judge by an order dated 07.02.2017 inter alia held that UBHL has become insolvent and is unable to pay its debt. Accordingly, an order was passed directing its winding up. The aforesaid order is subject matter of this appeal.
SUBSEQUENT EVENTS:
8. After an order directing winding up of the appellant was passed, the adjudicating authority under the Act, 2002 by an order dated 22.02.2017 confirmed order dated 03.09.2016. Thereafter in pursuance of final order passed in O.A.No.766/2013, an amended recovery certificate was issued on 10.04.2017 by Debt Recovery Tribunal, Bengaluru. The Supreme Court by an order dated 09.05.2017 held Dr.Vijay Mallya in contempt, in contempt petition Nos.421-424/2016. Sometime in June, 2018, I.A.3/2018 was filed by the appellant in this appeal seeking permission to allow sale and disposal of assets and deposit of sums after payment of taxes and pledgees dues in the court. The objections were filed on behalf of Consortium of Banks as well as Directorate of Enforcement.
14
9. The Consortium of Banks filed an appeal before the appellate tribunal being aggrieved by the order dated 01.12.2016 passed by the adjudicating authority under the Act, 2002, by which provisional order of attachment was confirmed in September, 2018. The Consortium of Banks filed another appeal Being aggrieved by order dated 22.02.2017 passed by the adjudicating officer under the Act, 2002 confirming the provisional order of attachment dated 03.09.2016. The appellate Tribunal by an order dated 10.10.2018 directed Directorate of Enforcement to maintain status quo with regard to properties mentioned in the impugned order and directed Dr.Vijay Mallya not to deal with and alter status of the properties mentioned in the schedule and not to create third party interest. A bench of this court by an order dated 17.12.2018 directed that I.A.No.3/2018 shall be heard along with the main matter. Thereafter by an order dated 19.03.2019 it was inter alia held that there is no impediment, in the Recovery Officer, Debt Recovery Tribunal to proceed in accordance with law to sell shares of UBHL. It was further noted that the senior counsel for the appellant is 15 not pressing for orders on I.A.No.3/2018 for the present. It was further held that for the purposes of arriving at a consensus in the matter, if possible insofar as the assets of the voluntary contributories are being made available for the benefit of appellant and the sale of those assets herein stands deferred.
10. The appellant thereafter filed an application on 22.03.2019 seeking for injunctory reliefs against recovery officer, Debt Recovery Tribunal from proceeding with the sale of the shares of the appellant, after having consented to sale of shares before this court on 19.03.2019. The aforesaid application was rejected by the special court, Mumbai by an order dated 26.02.2019. Thereafter, the Appellate Tribunal under the Act, 2002 passed an order on 15.04.2019 clarifying that Special Court would be entitled to pass orders on the application filed by the bank under Section 8(8) of the Act, 2002. Against order dated 19.03.2019 passed by a bench of this court in this appeal, the appellant filed special leave petition before the Supreme Court. The Supreme Court by an order dated 10.01.2020, in view of consensus arrived 16 at between the parties observed that this appeal as well as connected appeals be disposed of by the high court as early as possible preferably not later than three months from today and disposed of the Special Leave Petition. In the aforesaid factual background, this appeal has come up for hearing before us.
ARGUMENTS ON BEHALF OF THE APPELLANT:
11. Learned Senior counsel for the appellant at the outset while inviting the attention of this court to proposal contained in I.A.No.3/2018 submitted that the aforesaid proposal will result in determination in discharge of dues of creditors of UBHL including Consortium of Banks and bring a quietus to civil disputes between UBHL and its creditors including Consortium of Banks. It is also urged that steps taken by Consortium of Banks by filing applications under Section 8(8) of the Prevention of Money Laundering Act, 2002 before the Special court in Mumbai seeking restoration of assets attached by Directorate of Enforcement under the first provisional order dated 11.06.2016 and second provisional attachment order dated 03.09.2016 will not result 17 in determination and discharge of the dues of Consortium of Banks. It is also pointed out that Directorate of Enforcement in its reply dated 05.02.2019 filed to the aforesaid applications under Section 8(8) of the Act, 2002 has in unequivocal terms has stated that Directorate of Enforcement leaves it to the best judgment of the court under the Act 2002 to grant the prayer made by the appellant. It is further submitted that I.A.NO.3/2018 is filed by UBHL duly supported by an affidavit dated 21.06.2018 by Dr.Vijay Mallya and supported by shareholders, general body meeting resolutions dated 21/22.11.2018 and 6 private limited companies owned/controlled by family members of Dr.Vijay Mallya. It is also urged that the proposal is a reasonable and bonafide proposal which will result in determination and discharge of dues of creditors of UBHL including Consortium of Banks.
12. It is also urged that piecemeal sale of shares of UBHL would be detrimental to the interest of creditors, as shareholding of Heineken Group in the shareholding of UBHL has increased to 43.89% whereas, shareholding of UB Group 18 in UBHL has diminished to 27.63%. Therefore, in order to maximize realization from the sale of aforesaid aggregate shares of UBHL belonging to UB Group and forming part of I.A.3/2018 and in view of the fact that it carry with them a right to block a special resolution, it is imperative that it be sold by an international tender process as a block, rather than in a piecemeal manner. It is also argued that global competitors of Heineken Group can also bid in its substantially controlling block of shares and in UBHL. It is also contended that appellate authority under the Act, 2002 while dealing with the first attachment order of the adjudicating authority dated 01.12.2016 has stated that it is ready and willing to sell and dispose of the assets attached under the first provisional attachment order under the supervision of this court / any other appropriate forum in a timely manner and to deposit the sale proceeds with the Registrar of this court.
13. It is also urged that since, the assets of Dr.Vijay Mallya and UBHL were attached on 11.06.2016/02.09.2016 by the adjudicating authority under the Act, 2002 at the 19 behest of Consortium of Banks, even prior to order dated 19.01.2017 passed by the Debt Recovery Tribunal, the respondents are not entitled to interest on and from the date of attachment of the assets of Dr.Vijay Mallya and UBHL.
Thus, the amount due to Consortium of Banks up to 11.06.2016 by calculating the interest accrued upto the date of first order of attachment would be Rs.5795.67 Crores and if the interest accrued upto the second provisional order of attachment i.e., 03.09.2016, the amount due would be Rs.5958.97/- Crores, whereas, the assets of the company are much more than the aforesaid amount. Thus, the aforesaid proposal which is genuine proposal should be accepted. It is also urged that the learned Single Judge erred in not appreciating that the assets of the appellant are sufficient to discharge the liabilities and therefore, an order directing winding up of the appellant could not have been passed.
ARGUMENTS ON BEHALF OF THE CONSORTIUM OF BANKS:
14. Learned Senior counsel for the Consortium of Banks while pointing out to para 3 of the affidavit submitted 20 that the application is only an offer which is being made by the appellant. It is further submitted that the prayer made in the application is beyond the scope and purview of this proceeding. Learned Senior counsel has taken us through the order passed by the learned company judge and has submitted that the order is perfectly just and legal. It is also pointed out that the Consortium of Banks owed a sum of approximately Rs.11,000/- Crores, which is an unsecured creditor. It is also pointed out that many other secured creditors and assets shown in Annexures-D & E include the assets held by individual and other entities who were not parties to the proceedings before the learned Single Judge. It is urged that the assets held by the appellants are not sufficient to discharge the debt. It is also argued that by means of I.A.3/2018 appellant and Dr.Vijay Mallya have sought permission to sell and dispose of the fixed assets and shares attached by Directorate of Enforcement under the provisions of the Act, 2002, which is not permissible. It is further submitted that such an offer of settlement was made on behalf of the appellant as well as Dr.Vijay Mallya before 21 the Supreme Court and they have failed to take any steps for settlement of their dues.
15. In this connection, our attention has been invited to order dated 26.04.2016 passed by the Supreme Court in SLP (c) No.6828-6831/2016 and it has been pointed out that even the Supreme Court has noted that Dr.Vijay Mallya has failed to show his bonafides by making any deposits of the amount for arriving at a meaningful settlement and there are no bonafides in the offer of settlement and the offer of settlement has been made only as a ploy to gain time. It is also urged that the conduct of the appellant as well as the bonafides of Dr.Vijay Mallya are questionable and Dr.Vijay Mallya has been declared as proclaimed offender and this court should not exercise its equitable jurisdiction in favour of appellant as well as Dr.Vijay Mallya. It is also pointed out that the details of market value of the assets attached / recovered by Directorate of Enforcement and Debt Recovery Tribunal as on 17.01.2020 are not supported by any affidavit and no cognizance of the same can be taken. In support of aforesaid submissions reliance has been placed on the 22 decision of the Supreme Court in 'HEGDE & GOLAY LIMITED VS. STATE BANK OF INDIA', ILR 1987 KAR 2673.
ARGUMENTS ON BEHALF OF THE OFFICIAL LIQUIDATOR:
16. Learned Senior counsel for the official liquidator submitted that once the official liquidator is appointed by this court, the official liquidator has been give powers under Section 457(1)(c) of the Act to sell immovable and movable properties and actionable claims of the company by public auction or private contract and under Section 457(1)(e) of the Act he has been empowered to do all such things as may be necessary for winding up of the affairs of the company and distributing its assets. It is further submitted that the property which has been attached can neither be dealt with by the banks nor the Directorate of Enforcement but has to be dealt with as per the provisions of the Companies Act.
ARGUMENTS ON BEHALF OF THE DIRECTORATE OF ENFORCEMENT:
17. Learned counsel for the Directorate of Enforcement has submitted that the adjudicating officer in 23 exercise of statutory powers under the Act, 2002 has attached the property and the shares have been converted to the name of Directorate of Enforcement. It is also urged that Dr.Vijay Mallya is a proclaimed offender, fugitive economic offender as well as contemnor and is therefore, not entitled to any discretionary relief. It is further submitted that in the proceedings before the different forums, the appellant as well as Dr.Vijay Mallya have taken inconsistent stands.
18. By way of rejoinder reply, Learned Senior counsel for the appellant submitted that the validity of the order of attachment passed by the adjudicating officer under the Act, 2002 is pending before the appellate tribunal. With reference to the summary of market value of assets it is pointed out that the market value of the assets of the appellant alone as on 17.01.2020 is Rs.8667.86 Crores, whereas, the liability of the appellant is Rs.6958 Crores which is much less than the assets of the appellant. It is also pointed out that aforesaid assets are required to be sold under the supervision of a person with a commercial background.24
RELEVANT STATUTORY PROVISIONS:
1. The Companies Act, 1956:
Section 448 of the Companies Act, 1956 deals with appointment of the official liquidator, whereas, Section 449 provides that on a winding up order being made in respect of a company, the official liquidator shall by virtue of his office become the liquidator of the company. Section 457 of the Act enumerates the powers of the liquidator, which include the power to sell immovable and movable property and actionable claims of the company by public auction or private contract with power to transfer the whole thereof to any person or body corporate or to sell the same in parcels. Section 457(1)(e) also empowers the official liquidator to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.
2. The Recovery of Debts and Bankruptcy Act, 1993:
Under Section 19 of the Act, a bank or financial institution which has to recovery debt from any person may make an application to the Debt Recovery Tribunal. Chapter 25 V of the Act deals with recovery of debt determined by the Tribunal. Section 25 enumerates the modes of recovery of debts which includes attachment and sale of movable and immovable property of defendants as well as taking possession of the property over which security interest is created or any other property of the defendant and appointing receiver for such property and to sell the same. Section 28 provides for other modes for recovery whereas Section 34(1) of the Act provides that subject to provisions of Sub-Section (2) of Section 34, the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
3. The Prevention of Money Laundering Act, 2002:
The aforesaid Act was enacted with an object to prevent money laundering and to provide for confiscation of the property derived from or involved in, money laundering and for matters connected therewith or incidental thereto. Section 5 of the Act empowers the adjudicating officer to 26 attach a property involved in money laundering on an application being made by the Director or any other officer not below the rank of Deputy Director authorized by the Director for the purposes of this Section. Section 8 deals with adjudication. Section 8(8) provides that where property stands confiscated to the central Government under Sub Section (5), the special court, in such manner as may be prescribed, may also direct the central government to restore such confiscated property or part thereof of the claimant with a legitimate interest in the property who may have suffered a quantifiable loss as a result of the offence of money laundering. Section 71 of the Act provides that provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
LEGAL PRINCIPLES:
19. The procedure under Section 439(1) for winding up of a company is a mode of equitable execution. The power of winding up of the company is discretionary in nature. The general principle of adjudication in a proceeding for winding 27 up is that the issues are decided on the basis of rights and obligations as on the date of commencement of the lis.
However, it is open to the court to take note of subsequent events both of fact and law to mould the relief. The Supreme Court in 'MEGHAL HOMES PVT LTD VS. SHREE NIWAS GIRNI KK SAMITI', (2007) 7 SCC 753 has held that even when a company is under a liquidation and a compromise or an arrangement in respect of it is proposed, even then there is a need to conform to the statutory formalities. The court has the power to ascertain the real purpose under lying the scheme, the bonafides of the scheme, the good faith, in profounding it as a whole, it is just fair and reasonable. It has further been held that it is not for the court to examine the scheme as if it were the appellate authority over the commercial wisdom of the majority. In 'TALUKDAR AND COMPANY (FERTILIZER) PRIVATE LIMITED VS. OFFICIAL LIQUIDATOR', (2016) 14 SCC 289, it has been held that once the company is ordered to be wound up, the assets of the company come to the custody of the company court and no arrangement after winding up order can be recognized in respect of assets of the company. 28 ANALYSIS:
20. The learned company Judge by an order dated 07.02.2017 inter alia held that KAL was unable to pay its debt and therefore, an order of it's winding up was passed.
It was further held that defences taken by appellant before the learned Single Judge viz., that winding up petition cannot be converted into a money recovery suit and multiple recovery procedures have been resorted to by the creditors, and the guarantees were given by the appellant in favour of KAL under duress and coercion are not bonafide. It was further held that the Debt Recovery Tribunal in its order dated 18.11.2016 has already held that the argument that guarantees were executed under the coercion is not worthy of acceptance. The learned Company Judge on the basis of balance sheets, audit reports, independent auditors reports and annual reports from 2011-12 to 2015-16 held that there has been constant increase in losses and there has been a complete erosion of net worth of assets of the company and there has been reticent refusal of the appellant to square up its obligations under the guarantee furnished by it. The 29 learned company judge also took note of the fact, that even before the Supreme Court the appellant failed to show their bonafides by submitting a reasonable proposal of settlement. It was further held that the appellant has raised moonshine defences and it is unable to pay its debts and therefore, the ground of it's winding up under Section 433(e) of the Companies Act, 1956 is made out. It was further held that the appellant has become commercially insolvent.
21. There is no serious challenge on behalf of the appellant to the order passed by the learned Single Judge and the only submission on merits with regard to the order passed by learned Company Judge, which has been urged is that the assets of the company are more than its debts. The emphasis has been on proposal contained in I.A.No.3/2018 which according to appellants has been made bonafide and would result in determination of discharge of dues of creditors of UBHL including Consortium of Banks and bring a quietus to the civil disputes between the appellants and creditors including the Consortium of Banks. 30
22. Admittedly, the assets of the appellant have been attached / recovered by the Directorate of Enforcement under the Act, 2002 by the Debt Recovery Tribunal in exercise of powers under the Act, 1993. The Supreme Court while dealing with the scope and ambit of the powers under Article 226 of the Constitution of India has held that the High Court in exercise of powers conferred by Article 226 of the Constitution of India cannot prohibit any statutory authority from discharging its statutory functions. [SEE: UP SALES TAX SERVICE ASSOCIATION VS. TAXATION BAR ASSN., 1995 5 SCC 716]. Thus, if this court in exercise of powers conferred by the Constitution of India itself cannot prohibit any statutory authority from performing its statutory function under a statute, then certainly this court while exercising the appellate power under Section 483 of the Act cannot prohibit the adjudicating officer under the Act, 2002 or the recovery officer under the Act, 1993. Therefore, the proposal for settlement made on behalf of the appellant cannot be accepted as this court cannot issue directions for sale of the assets which have been attached / recovered by the Directorate of Enforcement and the Debt Recovery Tribunal 31 under the Act, 2002 and the Act, 1993, which in substance will tantamount to prohibiting the statutory powers which the authorities under the aforesaid Acts are entitled to exercise.
23. It is pertinent to mention here that neither Dr.Vijay Mallya nor other entities are parties to the proceeding before the company judge. We are conscious of the fact that appellant in this appeal is UBHL. However, it is necessary to make a reference to Dr.Vijay Mallya as he is a party to the offer of settlement made during the pendency of the appeal which is contained in I.A.No.3/2018. Admittedly, Dr.Vijay Mallya has been declared to a fugitive economic offender under fugitive economic offenders Act, 2008 and has been held to be in contempt by order dated 09.05.2017 passed by the Supreme Court in Contempt Petition (c) Nos.421-424/2016. The relevant extract of the aforesaid order reads as under:
32
28. We find that the allegations against Respondent No. 3 of committing of contempt are on two counts, in that-
a) He is guilty of disobeying the Orders passed by this Court in not disclosing full particulars of the assets as was directed by this Court.
b) He is guilty of violating the express Orders of Restraint passed by the High Court of Karnataka in the same Cause from which the present proceedings have arisen.
Though the contempt on the second count is theoretically of the orders passed by the High Court of Karnataka since those orders pertain to the very same Cause and the actions on part of Respondent No. 3 in not disclosing the account in question through which the transfers were affected also fall with respect to contempt on first count, we proceed to exercise our contempt jurisdiction even with regard to the second count.
As stated above, Respondent No. 3 was adequately put to notice and no prejudice has 33 been caused as a result of such assumption of jurisdiction by this Court.
29. Having considered the entirety of the matter, we find that Respondent No. 3 is guilty of having committed contempt of court on both the counts. At this stage it must be stated that in terms of Rule 6 (1) of Rules to Regulate Proceeding for Contempt of Supreme Court 1975, Respondent No. 3 was obliged and duty bound to appear in person in response to the notice issued by this Court in Contempt Petition. Instead, he chose to file application seeking recall of the orders issuing notice. Having considered the matter, we see no reason to recall that order and dismiss I.A. Nos. 1 to 4 of 2016 preferred by Respondent No. 3 in Contempt Petition Civil No. 421-424 of 2016. Respondent No. 3 is therefore duty bound to appear in person in the present contempt proceedings.
30. Since Respondent No. 3 has not filed any reply to the Contempt Petition nor did he appear in person, though we have found him guilty of having committed contempt of court, we deem it necessary to give him one more opportunity and also hear him on the proposed 34 punishment. We therefore adjourn matter to 10.07.2017 for hearing Respondent No. 3 in person on matters in issue including one regarding the proposed punishment to be awarded to him for contempt of court. The instant contempt petitions and connected cases shall now be listed at 2 o'clock on 10.07.2017. Respondent No. 3 may keep his affidavit ready to be tendered on the same day by stating mitigating circumstances, if any and any other submissions he chooses to advance.
31. We direct the Ministry of Home Affairs, Government of India, New Delhi to secure and ensure presence of Respondent No. 3 before this Court on 10.07.2017. A copy of this judgment be sent to the Ministry of Home Affairs for compliance.
24. Even when a company is under liquidation and an offer for compromise is made, there is a need to conform to statutory formalities and the court has power to ascertain the real purpose underlying the scheme as well as the bonafides of the scheme. In the instant case, the offer made on behalf of the appellant cannot be said to be bonafide and made in good faith as the same has been made in respect of the 35 assets which have already been attached by the Directorate of Enforcement and Debt Recovery Tribunal. Even otherwise as stated supra this Court in this appeal under Section 483 of the Act cannot prevent the statutory authorities from performing their statutory functions under the statute.
25. For yet another reason no reliance can be placed on the summary of market value of assets attached / recovered by the Directorate of Enforcement and Debt Recovery Tribunal as on 17.01.2020, which shows the value of the assets of UBHL at Rs.8667.86/- Crores and of Dr.Vijay Mallya at Rs.2799.12/- Crores and other entities at Rs.3051.04/- Crores. It is noteworthy that the aforesaid document is not supported by any affidavit or any other documentary evidence to show the market value of the assets attached / recovered by the Directorate of Enforcement and Debt Recovery Tribunal and therefore, no reliance can be placed on the aforesaid document. Even otherwise, it is contended on behalf of the respondents that liabilities of secured and unsecured creditors is more than the assets shown in the market value of assets attached / 36 recovered as on 17.01.2020. The aforesaid issue cannot be adjudicated in the proceeding under Section 483 of the Act. There has been no challenge to the finding recorded by the learned company judge that the company is unable to pay its debts. The substratum of the company has disappeared and heavy losses have already bee suffered by the appellant and it is incapable of carrying on any business. Therefore, in order to prevent further loss and to mitigate the liability, the learned company judge has rightly appointed official liquidator as liquidator of the company.
26. So far as submission made by learned senior counsel for the appellant that since, the assets of the appellant have been attached therefore, the Consortium of Banks are not entitled to interest from the date of attachment of assets is concerned, we refrain from expressing any opinion on the aforesaid issue as the same is beyond the scope of the present proceeding as well as the fact that we have declined to accept the offer of settlement made by the appellant. Similarly, the submission that piecemeal sale of shares of UBHL is detrimental to the 37 interest of the creditors need not be dealt with for the reasons stated supra.
In view of the preceding analysis, we do not find any infirmity with the order passed by the learned company judge warranting interference in this appeal. The pending interlocutory applications are disposed of with a liberty to the applicants to approach the forum available to them under the law with regard to their grievance. In the result, the appeal is dismissed.
Sd/-
JUDGE Sd/-
JUDGE SS