Delhi High Court
M/S New Cawnpore Flour Mills vs M/S Bakemans Industries Pvt Ltd on 20 December, 2010
Author: Sanjiv Khanna
Bench: Sanjiv Khanna
% 20.12.2010
Present: Mr. C.A. Sundram, Sr. Advocate with Mr. P.C.
Sen & Ms. Aanchal Yadav for Ceylon Biscuits
Limited.
Mr. Abhinit Das for the ex-management.
Mr. Rakesh Khanna, Sr. Advocate with Mr. Rajiv
K. Garg & Mr. Ashish Garg in CA No.
1367/2005.
Mr. Chinmoy Pradip Sharma for SICOM
Limited.
Mr. Rajiv Behl for the Official Liquidator.
Mr. Atul Sharma for IDBI/IFCI.
+ CA No. 900/2008 (filed by Ceylon Biscuits
Limited), CA No. 1767/2010 (filed by management
of the company under provisional liquidation) and
CA No. 495/2010 (filed by the Official Liquidator)
in CP No. 204/2003
1. Bakemans Industries Private Limited (BIPL, for short) was in
the business of making and marketing biscuits and allied products
under the trade mark/brand Bakeman since 1978. BIPL had availed
loan of Rs. 17 Crores from State Industrial Corporation Of
Maharashtra Limited (SICOM, for short) and had defaulted in
repayment. SICOM took over possession of BIPL factory at Patiala on
18th July, 2003 under Section 29 of the State Financial Corporations
Act, 1951. The operations were shut and the factory was locked.
2. In 2003, 16 separate petitions were filed by creditors of BIPL
under Section 433(e) and (f) read with Section 434 and 439 of the
Companies Act, 1956 (Act, for short). By order dated 6th April, 2004,
CP No. 204/2003 filed by New Cawnpore Flour Mills Private Limited
was admitted and citations were directed to be published. Looking
into the allegations and particularly the conduct of the management
of BIPL, the Official Liquidator attached to this Court was appointed
C.P.No.204/2003 Page 1
as the provisional liquidator to take over assets, properties and books
of accounts. It was observed in this order that it was not necessary to
pass separate orders in each winding up petition and the order would
operate in favour of creditors as if it has been made on a joint petition
of the creditors.
3. In the meanwhile, BIPL purportedly approached NRI Lead
Bank (which is a company not a Lead Bank) seeking financial
assistance. It is not clear what exactly happened thereafter but the
purported disputes between BIPL and NRI Lead Bank were referred
to Arbitral Justice of ADR Arbitration, stated to be a body recognized
by the Government of India in terms of Section 21 of the Arbitration
and Conciliation Act, 1996. The purported reference was in terms of
an alleged arbitration agreement. The arbitration proceedings were
closed as the tribunal opined that there was no genuine arbitration
agreement. However, new set of arbitrators were subsequently
appointed and rendered an award dated 16th August, 2003.
Subsequently, NRI Lead Bank filed an execution petition on the basis
of written agreement/award dated 16th August, 2003 passed by Board
of Conciliation. Sister concern of BIPL and SICOM were also made a
party to this execution proceeding. Subsequently, Industrial
Development Bank of India (IDBI), Industrial Finance Corporation of
India (IFCI) and some other banks/State Financial Corporations
were impleaded as parties.
4. Management of BIPL relying upon the purported award of the
Board of Conciliation took forcible possession of the factory on 14th
September, 2003. SICOM thereupon filed an application in the
execution petition and vide order dated 15th September, 2003 status
quo order was passed.
C.P.No.204/2003 Page 2
5. On 28th November, 2003, an assurance was given by the
management of BIPL in the execution proceedings that they would
come with a definite proposal for payment to the creditors. On 18th
December, 2003, the High Court in the execution proceedings
directed the management of BIPL to deposit Rs. 2 Crores failing
which SICOM was at liberty to proceed with the statutory remedies
available to them under the State Financial Corporation Act, 1951. An
undertaking was also given by the Managing Director of BIPL.
6. SICOM obtained a valuation report of the property consisting of
land measuring 30544 square yards and a building comprising of
three floors having RCC construction with plant and machinery at
Patiala, Punjab (hereinafter referred to as the property, for short).
There were also unpacked machineries, which had been imported
from abroad.
7. As the management of BIPL failed to deposit Rs. 2 Crores and
did not submit a definite proposal in terms of the order dated 28th
November, 2003 in the execution proceedings, SICOM was given
liberty to proceed with the sale. On 8th February, 2004, SICOM
advertised for sale of the factory in the newspapers.
8. On or about 15th March, 2004, Ceylon Biscuits Private Limited
(CBL, for short) filed an application before the execution court
seeking permission to inspect the property disclosing that they had
been negotiating with the management of BIPL.
9. CBL had shown willingness to submit bid and were allowed to
do so vide order dated 16th March, 2004. The matter was again taken
up before the civil court/execution court on 24th March, 2004 when
CBL made an offer of Rs. 12.5 Crores and deposited earnest money of
Rs. 25 lacs in dollars. The second highest bidder had submitted a bid
C.P.No.204/2003 Page 3
of Rs.11.7 Crores.
10. On 19th April, 2004, the proceedings pending before the
civil/execution court were directed to be listed before the Company
Court in view of the winding up petition CP No. 204/2003.
11. Now coming back to the company petition, SICOM filed CA No.
414/2004 with the prayer that the order dated 6th April, 2004
appointing provisional liquidator and asking him to take over assets,
properties and books of accounts of BIPL should be recalled. By
order dated 16th April, 2004, an interim direction was passed that
possession of SICOM in the above noted factory would not be
disturbed till the next date.
12. Another application CA No. 729/2004 was filed in CP No.
204/2004 by the management of BIPL. This application was for
direction to SICOM not to sell the property and for maintaining
status quo in respect of the property. This application was disposed of
vide order dated 17th July, 2004. The application was dismissed. In
this order it was noticed that in the civil/execution proceedings, bids
had been received from three parties, including CBL. In the order
dated 17th July, 2004, it is recorded that the bid of Rs. 12.5 crores
given by the CBL in the execution/ civil proceedings was the highest
and the same was accepted by the Company Court.
13. This order confirming the sale of the property in favour of the
CBL was taken in appeal before a Division Bench but without success
and this decision was made subject matter of challenge before the
Supreme Court in Civil Appeal Nos. 3628/2008 and 3629/2008. The
said civil appeals were disposed of vide detailed judgment dated 16th
May, 2008.
14. The Supreme Court in its detailed judgment reported in (2008)
15 SCC 1 has set out the entire history of litigation and respective
C.P.No.204/2003 Page 4
stands of the parties. In paragraph 36 of the judgment, the Supreme
Court has set out the core issues that arose for consideration before
them. The said paragraph reads as under:
"36. The core issues which arise for our
consideration in view of the rival contentions
of the learned counsel are:
(1) Whether in the facts and circumstances
of the case the executing court and
consequently the Company Judge could have
supervised the purported sale of the assets of
the appellant on behalf of SICOM having
regard to the provisions of Section 29 of the
1951 Act?
(2) Whether in a case of this nature and
particularly having regard to the fact that
SICOM submitted itself to the jurisdiction of
the executing court and the Company Court,
can now turn around and contend that in
effect and substance it had exercised its
statutory powers under Section 29 of the
Act and allowed the same only to be
supervised by the learned Company Judge?
(3) Whether the statutory powers of a
financial corporation as envisaged under
Section 29 of the 1951 Act would prevail over
the proceedings before a Company Judge in a
winding-up proceeding?
(4) Whether involvement of the Official
Liquidator in the facts and circumstances of
the case and particularly in view of the fact
that Official Liquidator brought to the court‟s
notice claims of other creditors, the Company
Judge ought to have dealt with the same in the
manner laid down in the Companies Act
and/or the Rules framed thereunder and/or
the decision of this Court?
(5) Whether the High Court while exercising
its powers under Section 433 of the
Companies Act read with other provisions
could ignore the claims of the other creditors,
and in particular the workmen, having regard
to the provisions of Section 529-A thereof.
(6) Whether the High Court while
exercising its jurisdiction both in the
execution proceeding as also winding-up
C.P.No.204/2003 Page 5
proceeding can, in the fact situation obtaining
herein, be said to have adopted a fair
procedure.
(7) Whether in any event the High Court
could have ignored the legal requirements as
regards the conduct of sale of the assets of the
appellant only on the basis of: (1) wrongful
conduct on the part of the appellant in
obtaining an award from the Conciliation
Tribunal; and (2) its failure to bring a better
offer from another bidder."
15. The finding of the Supreme Court is that SICOM though
secured creditor had submitted itself to the jurisdiction of the
Company Court and, therefore, the jurisdiction, which was exercised
by the Company Court was under the provisions of the Act and not
Section 29 of the State Financial Corporation Act, 1951. The Supreme
Court has recorded that the Official Liquidator had brought to the
notice of the Company Court claims of other creditors including
workmen, who are entitled to pari pasu payment under Section 529A
and 530 of the Act. It was noticed that the Official Liquidator had
stated that 373 claims had been filed and the total amount demanded
was about Rs.100 Crores. There were also claims of Provident Fund
and statutory dues, which have to be given priority. It was held that
the Company Court was wrong in effecting the sale treating SICOM as
an agent. This was impermissible and contrary to the provisions of
the Act. The Company Court was required to not only look after
interest of the mortgagee/mortgager but also under statutory
obligation to safeguard the interest of the workmen and other non-
secured creditors. The Company Court, it was observed is under
statutory obligation to comply with various provisions of the Act and
the Rules before selling the property including provisions related to
valuation. The role of the Official Liquidator, who was appointed as
C.P.No.204/2003 Page 6
the provisional liquidator was emphasized. Paragraphs 74 to 81 of
the judgment records the gist of findings and ratio why the Supreme
Court has set aside the sale which was confirmed vide order dated 17th
July, 2004. The said paragraphs read as under:-
"74. ....This is the meat of the matter. If the
property which has been put to auction was
the prime property over which the fate of the
creditors depended, be they secured or non-
secured ones, the Company Court, in exercise
of its equity jurisdiction could not have
obliterated it from its mind the cases of the
others. If the assets belong to the creditors,
that must mean the whole body of the
creditors and not only one of the secured
creditors. The inconsistency of it is self-
evident, as, on the one hand, it is stated that
the property of the Company does not vest in
the court or the Official Liquidator, on the
other hand, it is stated that it is vested in the
body of the creditors and not only in SICOM.
75. The High Court, therefore, could not
have ignored the Official Liquidator only on
the ground that a provisional Official
Liquidator was appointed and not a regular
Official Liquidator. The power and functions
of the provisional Official Liquidator for all
intent and purport would be the same as that
of the Official Liquidator and, therefore, it was
not necessary for the Company Judge to wait
till the Company was wound up.
76. If the jurisdiction of a Company Judge
is limited, any substantial deviation and
departure therefrom would result in
unfairness. When an order is passed in total
disregard of the mandatory provisions of law,
the order itself would be without jurisdiction.
In this case, however, even otherwise a fair
procedure was not adopted. We, however, very
much appreciate the anxiety on the part of the
Court to see that otherwise just dues of
C.P.No.204/2003 Page 7
SICOM be realised. Conduct of a party plays
an important role in the matter of grant of a
relief. However, only because the conduct of a
party was not fair, the same, by itself, cannot
be a ground to adopt a procedure which is
unjust or unfair, particularly, when by reason
thereof, not only the Company itself but also
other creditors are seriously prejudiced. We
fail to see any reason as to why the hearing of
the case was to be preponed. Why even a day‟s
time could not have been granted when a
prayer for adjournment was made. The
jurisdiction of the Company Court is vast and
wide. It can mould its reliefs. It may exercise
one jurisdiction or the other. It may grant a
variety of reliefs to the parties before it. The
parties before the Company Judge are not
only the company or the creditors who had
initiated the proceedings but also others who
have something to do therewith. Even in a
given case a larger public interest may have to
be kept in mind. The court may direct winding
up. It may also prepare a scheme for its
restructuring.
77. We, therefore, are of the opinion that
the Company Judge was not correct in its view
and passed the impugned judgments only
having regard to the wrongful conduct on the
part of the appellant in obtaining an award
from the Conciliation Tribunal or failure to
bring a better offer from another bidder.
78. The question which is really an
intricate one is what relief can be granted. On
the one hand, the Company has committed
wrongs, on the other, its property has been
sold in auction. Even a part of the property
has been permitted by us to be taken out of
the country. The factory, we are told, has
started operation. It has employed a large
number of workmen. Would that itself mean
that we should refrain ourselves from granting
any relief? Direction issued by this Court in a
case of this nature need not be a narrow one.
C.P.No.204/2003 Page 8
The Court has to take into consideration the
fate of not only those workmen who are
working but also those who have a claim
against the Company. We must also take into
consideration the fate of the other creditors.
79. We, therefore, are of the opinion that
interest of justice would be subserved if while
allowing the appeal, the learned Company
Judge is requested to go into the question
afresh in accordance with the provisions of the
Companies Act and hold a fresh auction.
While doing so, indisputably, Ceylon Biscuits
Pvt. Ltd.‟s offer would be considered. The
Company Judge may consider the question of
grant of some preference to Ceylon Biscuits
Pvt. Ltd. but while an auction is to be held,
there should be a proper valuation of all the
assets of the Company both movable and
immovable.
80. The court, indisputably, may consider
the question of framing an appropriate
scheme if it is found that there is a possibility
of revival of the Company. In other words, we
leave all options open to the learned Company
Judge as are available in terms of the
provisions of the Companies Act including
adjustment of equities amongst the parties.
81. Till, however, a final order is passed,
Ceylon Biscuits Pvt. Ltd. would continue to
function not as an auction-purchaser but as a
Receiver of the Company Court. Ceylon
Biscuits Pvt. Ltd. shall file all statements of
accounts in regard to the amounts which it
had invested and all other requisite
statements including the valuation of
machinery it had taken out of the country
before the court. The court may appoint a
chartered accountant to verify the said
statements. The court, if it thinks fit and
proper, may, apart from the provisional
liquidator, appoint another person to
supervise the works and functioning of Ceylon
Biscuits Pvt. Ltd. as a Receiver of the court. As
C.P.No.204/2003 Page 9
Ceylon Biscuits Pvt. Ltd. is being appointed as
a Receiver, it goes without saying that it shall
act strictly under the supervision of the court
and abide by the orders which may be passed
by it from time to time."
16. This Court is primarily concerned with the implementation
of the directions given by the Supreme Court in paragraphs 77 to
81 quoted above.
17. CBL took possession of BIPL factory of the property on 3rd
March, 2005 from SICOM. Sale certificate dated 29th October,
2007 was issued pursuant to an order dated 6th July, 2007 passed
by the Company Court. CBL incorporated a subsidiary, Ceylon
Biscuits India Private Limited (CBIPL, for short) on 5th April,
2005 for the purpose of manufacturing and using the property.
CBL also provided working capital to CBIPL after its
incorporation. After judgment of the Supreme Court, CBIPL
stopped production on 15th September, 2008. It is stated that this
production was stopped due to paucity and non availability of
funds. CBL filed an affidavit in this Court on 8th November, 2008
stating that CBIPL had stopped production with effect from 15th
September, 2008. This fact is not disputed. The property has not
been put to any productive use since then.
18. The case made out in application CA No. 900/2008 by CBL
is that they have been providing finance and working capital to
CBIPL since its incorporation, which has been incurring losses
throughout. This fact has been confirmed by the statutory
auditors of CBIPL. As on 31st March, 2008, CBIPL owes CBL
Rs.7,13,80,551/-. In CA No. 900/2008, CBL has asked for the
following reliefs:
C.P.No.204/2003 Page 10
"1. Reimbursement of Rs. 12.5 Crores which
was deposited with the Hon‟ble High Court as
the auction price for the BIPL property
together with interest.
2. Reimbursement of Rs. 1.18 Crores
spent on commissioning of plant and
machinery and maintenance and security of
the land, plant and machinery purchased by
CBL. Interest in this amount is also claimed.
3. Reimbursement of Rs. 6.68 Crores being
the cumulative loss incurred upto 31.03.08 by
its subsidiary company CBIPL entrusted with
the running the business of manufacturing
biscuits using BIP property and other assets.
4. Reimbursement of expenses incurred
between 31.03.08 and 31.07.08 amounting to
Rs. 0.08 Crores.
5. Reimbursement of expenses incurred
after July 2008 and till the property is re-
auctioned.
6. Permission to remove the plant and
machinery brought in and purchased by CBL
from time to time."
19. Vide order dated 2nd December, 2008, Vaish and Associates,
Chartered Accountants were appointed to verify the statement
submitted by CBL. They have submitted a report in which some
discrepancies/objections have been raised. However, they have
accepted that even after adjustment of certain amounts, CBL had
C.P.No.204/2003 Page 11
transferred to CBIPL Rs.10,89,65,576. It is also accepted that CBL
had transferred Rs.10,02,344/- to third parties for
operations/startup operations. They have stated that CBIPL has
incurred/adjusted accumulated loss of Rs.7,11,09,833/- and had
installed new assets amounting to Rs.51,49,093/-. In the report it
is stated that under pre-operational expenses after adjustment the
total expenses incurred were Rs.52,57,321/-. Rs.14,50,577/- was
incurred towards maintaining assets after takeover.
Rs.21,74,821/- was incurred on security and safety of the
premises. Rs. 9,44,321/- was incurred on making improvements,
additions to building, plant and machinery. There are certain
other expenses, which have been also explained and accepted in
the report.
20. I am, however, not inclined to accept prayers 2 to 4 made in
the application CA No. 900/2008 despite the report of Vaish and
Associates, Chartered Accountants. Substantial expenditure has
been incurred by CBL/CBIPL when they were operating and
running the factory. Obviously business losses and profits belong
to either CBL or CBIPL, they cannot be passed on to the Court.
Court was not running the factory and doing business. CBL or
CBIPL was not an agent of the Court. Profits and losses are
inherent in any business and it is not the obligation of the Court
to reimburse the losses suffered by them while they were carrying
on business. In case the contention of CBL or CBIPL is to be
accepted, then if profits were earned, CBL/CBIL was liable to
account for the same. Obviously such a contention cannot be
accepted and, therefore, conversely also the plea and claim of CBL
or CBIPL has to be rejected.
21. There are two contentious issues. First is the issue with
C.P.No.204/2003 Page 12
regard to lines 5 and 6 along with some other equipments which
were dismantled and taken away to CBL factory in Sri Lanka. This
was done with the permission of the High Court which order was
confirmed by the Supreme Court. The question is what order or
direction should be passed in respect of the lines 5 and 6 and
other equipment taken to Sri Lanka. The second issue is whether
CBL is entitled to interest, if so, at what rate.
22. With regard to first aspect, the Court had appointed ITCOT,
Chennai, as expert valuers to visit the factory at Patiala and also
visit the factory of CBL in Sri Lanka. They were asked to value the
factory at Patiala and value lines 5 and 6 and other equipment
dismantled from Patiala and installed by CBL in Sri Lanka. As per
the report dated February, 2009, the total value of the plant and
equipment, including lines 5 and 6 which were shifted and
reassembled in Sri Lanka as on 23rd February, 2009 has been
estimated as Rs.354.83 lacs. Subsequently, vide order dated 3rd
October, 2008, ITCOT was asked to assess the fair market value
of the said plant and equipment, including lines 5 and 6 at Sri
Lanka as in June, 2005. In the second report they have valued the
said plant and equipment at Rs.449.43 lacs. In the reply filed by
ITCOT in this Court on 5th May, 2010 to CA No. 1208/2009, the
said valuation has been justified on the ground that they have
applied straightline depreciation @ 6.66% per year for four years,
which has been added to the value of the plant and equipment as
in February, 2009. Per se, this method of valuation is defective
and cannot be and should not be accepted. There are several
reasons for the same. Firstly, it presumes that the equipment was
new equipment as on June, 2005 whereas in fact the entire plant
and equipment as per the report itself was manufactured and
C.P.No.204/2003 Page 13
assembled in the year 1997-98. By this method, the valuation of
the plant and equipment in 1997-98 would have been several
times more by applying and adding 6.66% depreciation every
year. By the same reasoning, the actual purchase value of the
equipment/plant in 1997/1998 should have been the basis for
valuation. This basis has rightly not been adopted and applied.
Secondly, what was required and valued was the market value of
the plant and equipment, which were dismantled and taken to Sri
Lanka. The market value cannot be calculated by applying rate of
depreciation, which can be at best a vague estimate or gives the
book value and is not an accurate estimate of the market
value/price.
23. At the same time, in rejoinder filed to CA No. 900/2008,
CBL has stated that the manufacturer of the machinery, viz., New
Era Machines Private Limited has stated that the same machinery
with additional features and higher capacity would cost Rs. 3.4
Crores. It is the contention of management of BIPL that this
quote of Rs. 3.4 Crores is for only one line and does not include
additional features. This is disputed by the counsel for the
applicant CBL/CBIPL. Fortunately, I need not dwell further into
this aspect of valuation as CBL/CBIPL has agreed and even the
management of BIPL has agreed to the following:
(i) The entire plant and equipment,
including lines 5 and 6, which were
dismantled from the property will be brought
back to the property and re-assembled and
made operational by CBL at their cost and
expense.
(ii) After re-assembling, an
C.P.No.204/2003 Page 14
inspection will be carried out, by a court
appointed expert in the presence of
representatives of the management of BIPL.
Management of BIPL is insisting that New Era
Machines Private Limited should carry out the
said inspection, especially inspection of the
oven. The applicant-CBL has some
reservations. The expert, who has to carry out
inspection, is for the time being left open.
However, the purpose and objective of the
expert inspection is to ensure that the
equipment, including lines 5 and 6 have been
properly installed and are in good working
condition.
(iii) Till the plant and
equipment, including lines 5 and 6 are
properly installed and certified, Rs. 4 Crores
will remain with the Court and will be kept in
an FDR. The said amount will be refunded to
CBL1 after the expert has certified that the
plant and equipment, including lines 5 and 6
have been installed and are operational.
24. The next question relates to refund of balance Rs. 8.5 Crores
and whether or not the applicant-CBL is entitled to interest on the
amount deposited.
25. Regarding refund of Rs. 8.5 Crores there cannot be any
doubt and dispute that the amount has to be refunded as the
auction has been set aside. The main issue and contention raised
1
Corrected vide order dt. 28.1.2011
C.P.No.204/2003 Page 15
by the management of BIPL is that CBL is not entitled to any
interest on the amounts deposited by them in two installments of
Rs. 25 lacs on 23rd March, 2004 and Rs.12.25 Crores on 13th
August, 2004 (Total Rs. 12.5 Crores).
26. Learned counsel for the management of BIPL has relied
upon the judgment of the Supreme Court in the case of
Allahabad Bank Vs. Bengal Papers Mills (2004) 8 SCC
236. The relevant portion is reproduced below:-
"10. The Official Liquidator, in winding-up
proceedings by court, has the power to sell the
immovable properties of the company wound
up, under Section 457(1)(c) of the Companies
Act, 1956. Rule 272 of the Companies (Court)
Rules, 1959 provides that an Official
Liquidator can sell the property belonging to
the company only with the previous sanction
of the court and that every sale shall be subject
to confirmation by the court. Rule 273 lays
down the procedure for sale and Rule 274
deals with the meeting of the expenses of the
sale. Order 21 Rule 93 of the Code of Civil
Procedure (for short "the Code") provides that
where a sale of immovable property is set
aside under Rule 92 of Order 21, the
purchaser shall be entitled to an order for
repayment of his purchase money with or
without interest as the court may direct,
against any person to whom it has been paid.
It has been held that even though Order 21
Rule 93 of the Code may not ipso facto apply
to a sale otherwise other than under the Code,
the principle embodied therein can be applied
to other sales to order refund of the purchase
price with interest while setting aside a sale.
But it has to be seen that Rule 93 of Order 21
of the Code gives a discretion to the court
setting aside a sale, either to award interest or
not to award interest. Considered in the
context of that discretion, it is clear from the
judgment rendered by this Court that this
Court refused to direct the payment of interest
to the applicant even while directing the
refund of the purchase price paid by the
C.P.No.204/2003 Page 16
applicant to the Official Liquidator. In such a
situation it is not possible to accede to the
prayer of the applicant to order the payment
of interest on the purchase price paid by it,
based on the principle embodied in Order 21
Rule 93 of the Code on this application for a
clarification of the judgment. In the
circumstances of the present applications, we
have to proceed on the basis that this Court
has exercised its discretion not to award
interest on the purchase price in the light of
the directions issued by it in that behalf.
11. Learned counsel for the applicant relied
on the decision in Motors & Investment Ltd.
v. New Bank of India and submitted that in
that case the Court ordered payment of
interest to the purchaser on the sale being set
aside. On an examination of para 6 of the said
decision, it is seen that the question was not
discussed as such. But the Court did order the
interest earned by the purchase price to be
refunded to the purchaser or in the alternative
to pay interest on the amount at 18 per cent
per annum. In the case of Central Bank of
India v. Ravindra this Court discussed the
concept of interest to point out that it was the
payment fixed by agreement or allowed by law
for use or detention of money. In other words,
what was indicated was that interest was
really compensation for the use of the money
which the purchaser was deprived of. Going by
the principle of compensation indicated in the
said judgment, the question would arise
whether the applicant, in the circumstances of
this case, when it had enjoyed the assets for
about ten years on deposit of the purchase
price, would be entitled to any compensation
at all, or to compensation with an obligation
to account for the profits, an issue, that has to
be adjudicated in an appropriate manner and
not certainly while considering an application
for clarification. We find that the obtaining of
possession by the purchaser on deposit of the
purchase price has considerable relevance in
deciding whether the purchaser would be
entitled to interest on the purchase price as
indicated by the decision of this Court in
Union Bank of India v. Official Liquidator
H.C. of Calcutta. Therein, after referring to
the decision in Motors & Investment Ltd. v.
New Bank of India relied on by counsel for
the applicant and the direction for payment of
interest made therein, this Court declined the
award of interest on the distinction that, in
that case, possession had passed to the
C.P.No.204/2003 Page 17
purchaser. The Court stated that the judgment
in Motors & Investment Ltd. v. New Bank of
India had no bearing mainly because as soon
as the amount was deposited by the
purchaser, possession of the property was
handed over to him. No doubt the learned
Judges thereafter, also referred††† to the
decision in the present case† and the non-
award of interest therein. But, in our view,
that makes no difference, since the
distinguishing feature relied on by the said
decision, was the non-passing of possession to
the purchaser. In this case, as we have
noticed, the applicant, the purchaser, obtained
possession even before he had paid the entire
purchase price and had paid only 25 per cent
or so of the purchase price and kept that
possession for 10 years.
12. Even on the principle of restitution, the
claim of the applicant may not succeed. This is
not a case where the applicant was deprived of
both his money and the property purchased by
him. There was, therefore, no failure of
consideration. By the subsequent order of
court, the sale was set aside; but during the
interregnum, the applicant had the benefit of
the assets he had purchased. The other
contracting party, the Company in liquidation,
was deprived of the use of its assets. The
creditors who held the properties as security
were deprived of their right to deal with the
security or to enjoy the benefits of the security
during the interregnum. In fact, the securities
available to the creditors were utilised by the
auction-purchaser, the applicant. In that
situation, the applicant might have the
obligation to account for the profits. Certainly,
while rendering the main judgment, this Court
was conscious of all these aspects while
ordering refund only of the purchase price
deposited without providing for payment of
interest to the purchaser but at the same time
leaving it open to the purchaser to work out its
claim for the expenses incurred by it before
the Company Court.
13. As stated in Goff and Jones: The Law of
Restitution (6th Edn.) the law of restitution is
the law relating to all claims, quasi-
contractual or otherwise, which are founded
upon the principle of unjust enrichment. It
will, therefore, be necessary to investigate that
aspect even if we invoke Sections 70 and 72 of
the Contract Act. Even if we invoke Section 65
of the Contract Act, the advantages derived by
C.P.No.204/2003 Page 18
each of the parties will have to be determined
and quantified in terms of money and any
order in favour of the applicant can be made
only after undertaking that exercise. This
result cannot be achieved by seeking a
clarification of the judgment as now done.
14. It also appears to us that there was a
change of position of the parties including the
creditors, pursuant to the sale and the
applicant being put in possession. In that
context, the adequacy of consideration paid by
the applicant will be a relevant consideration.
As observed in Goff and Jones in para 42-004,
"neither common law nor equity normally
inquires into the adequacy of the
consideration which the purchaser provides.
But such an enquiry would be central to any
defence solely based on a defence of change of
position, for, it is a defence which operates to
discharge, wholly or in part, a defendant‟s
duty to make restitution."
Be it noted that the sale in favour of the
applicant was set aside by this Court mainly
on the ground that the consideration paid was
grossly inadequate."
27. Paragraphs 12 to 14 of the said decision deal with the
principle of restitution and it was observed in the said case that
the applicant‟s claim on the said ground was not entitled to
succeed in the said case.
28. Law of restitution was initially recognized as based upon
quasi contract or implied contract theory. It was founded on the
principal that the recipient must account for money had and
received and for money paid or from quantum meruit and
quantum valebant claims i.e. all claims for recovery of reasonable
remuneration for services rendered or for goods supplied.
However, since 1990‟s, the principle of restitution has been
recognized as an independent legal principle, not dependent on
C.P.No.204/2003 Page 19
quasi contract or implied contract theory. Emphasis has shifted to
restoration of benefits on the ground of unjust enrichment at the
claimant‟s expense. This has broadened and widened the concept
of restitution and the said doctrine has been applied to a variety
of claims. This is noted in paragraph 13 of the judgment of the
Supreme Court in Allahabad Bank (supra).
29. In Halsbury‟s Law of England (4th edition vol. 40(1) at page
8 in paragraph 10), it has been observed that generally there are 4
stages to a restitutionary claim; (i) The recipient/defendant must
have been enriched (ii) Enrichment must have been at the
expense of the claimant (iii) Enrichment must not have been
"unjust" (iv) Consideration must be given to defenses applicable,
if any. Sometimes, a 5th stage is added, namely, remedy available
to the claimants.
30. For a restitutionary claim, normally the defendant should
have been enriched as a result of something, which the claimant
has done for or given to the defendant. Absence of enrichment is
fatal to the existence of restitutionary claim. Yes, there can be
cases where there is loss to the claimant but no corresponding
gain to the defendant. In such cases, restitution is used to denote
the restitution of the claimant to the previous position by making
good the loss which he has suffered.
31. Unjust enrichment can be positive i.e. when a person
receives goods or money or negative i.e. because of savings
incurred. Enrichment takes place when a claim against a
defendant is discharged by the payment made by the claimant.
Indirect enrichment in this manner falls within the term
"enrichment" as the defendant is enriched at the claimant‟s
C.P.No.204/2003 Page 20
expenses. The loss to the claimant as a result of payment is
matched with the benefit/gain to the defendant. The terms
„unjust‟ is flexible but broadly means and implies that there is an
objection and it would be unfair and result in injustice, if the
defendant is allowed to retain the benefit without compensating
the claimant. Mistake of fact, mistake of law, duress, undue
influence, failure of consideration, discharge of debt etc., have
been recognized as factors, which can render enrichment unjust.
The defenses available to the defendant include estoppel,
bonafide purchase for value, passing on, illegality or incapacity.
Defense of change in position is also available but this is
examined on a case to case basis. Generally, mere fact that the
defendant has spent money, does not make it inequitable to deny
restitution. The defendant has to establish causal link between the
receipt of money and change in position, which makes it
inequitable for the recipient/defendant to make restitution.
32. However, I need not go deeper into this aspect as CBL has
not relied solely upon the principle of restitution. Learned counsel
for the CBL has in fact relied upon the Order 21 Rule 93 of the
Code of Civil Procedure, 1908 (Code, for short), which provides
that where sale of immoveable property is set aside, the purchaser
will be entitled to refund of purchase money with or without
interest as the court may direct, against any person to whom it
has been paid. In paragraph 10 of the judgment in Allahabad
Bank (Supra), it has been held that principles embodied in Order
21 Rule 93 can be applied to other sales to order refund of the
purchase money with or without interest while setting aside a
sale. The Court has discretion to award interest while directing
C.P.No.204/2003 Page 21
refund of purchase money, when a sale made by the Court is set
aside and the purchaser is to be refunded the money deposited by
him. Reference can also be made to Section 144 of the Code which
reads:-
"144. Application for restitution.--(1)
Where and insofar as a decree [or an order] is
[varied or reversed in any appeal, revision or
other proceeding or is set aside or modified in
any suit instituted for the purpose, the Court
which passed the decree or order] shall, on the
application of any party entitled to any benefit
by way of restitution or otherwise, cause such
restitution to be made as will, so far as may
be, place the parties in the position which they
would have occupied but for such decree [or
order] or [such part thereof as has been
varied, reversed, set aside or modified]; and,
for this purpose, the Court may make any
orders, including orders for the refund of costs
and for the payment of interest, damages,
compensation and mesne profits, which are
properly [consequential on such variation,
reversal, setting aside or modification of the
decree or order].
[Explanation.--For the purposes of sub-
section (1), the expression "Court which
passed the decree or order" shall be deemed to
include,--
(a) where the decree or order has
been varied or reversed in exercise of
appellate or revisional jurisdiction, the Court
of first instance;
(b) where the decree or order has
been set aside by a separate suit, the Court of
first instance which passed such decree or
order;
(c) where the Court of first instance
has ceased to exist or has ceased to have
jurisdiction to execute it, the Court which, if
the suit wherein the decree or order was
passed were instituted at the time of making
the application for restitution under this
C.P.No.204/2003 Page 22
section, would have jurisdiction to try such
suit.]
(2) No suit shall be instituted for the purpose
of obtaining any restitution or other relief
which could be obtained by application under
sub-section (1)"
33. Learned counsel appearing for BIPL has submitted that if
possession of the property is given to the auction purchaser, he is
not entitled to any interest when subsequently the auction sale is
set aside. Secondly, it is submitted that the auction purchaser
was/is always aware and conscious of the fact that the auction
sale/confirmation of sale can be challenged in appellate
proceedings. Therefore interest shall not be paid. The third
contention raised by the management of BIPL relates to adequacy
of the sale consideration paid by the auction purchaser. In this
connection, my attention was drawn to the paragraph 14 of the
judgment in the case of Allahabad Bank (Supra), wherein
paragraph 42-004 from Goff and Jones: The Law of Restitution,
has been quoted.
34. The third contention of the counsel for the management of
BIPL will be discussed in the subsequent portion of this order.
35. It is not possible to accept as an ominous universal rule that
whenever possession of the property is given to the auction
purchaser, he is not entitled to interest, if the sale is subsequently
set aside as auction purchaser is always aware and conscious of
the fact that the auction can be challenged in appellate
proceedings. There are good reasons for the same. Court auctions
do not normally fetch market value for a variety of reasons
including uncertainty, delay and further litigation. If this
C.P.No.204/2003 Page 23
argument on behalf of Management of BIPL is to be accepted and
given judicial recognition, it will have a further negative impact
and depress court auction/bids. This will not be in the interest of
the judgment debtors or the creditors as attempt of the Court is to
fetch and get best possible price. This is not be possible if bidders
are not be paid interest even if the sale/auction is set aside. After
all no auction purchaser will like that his money to be stuck,
pending appeal/challenge with a stipulation that if the
bid/auction/sale is set aside, he will be refunded money without
interest. Even if possession is given, optimum and full use of the
property is invariably denied and/or not possible.
36. It is also not possible to accept the contention of the
management of the BIPL that in the case of Allahabad Bank
(Supra) it has been held by the Supreme Court that whenever
possession of a property is given to the auction purchaser, no
interest is payable. In the case of Allahabad Bank (Supra), the
Supreme Court has not laid down any such ratio. The facts of the
Allahabad Bank (Supra) leading to the decision dated 7th
October, 2004 may be noticed. In the said case by judgment in
appeal decided on 20th April, 1999, the auction purchaser was
directed to be refunded the bid amount of Rs. 2 Crores as the
auction sale was set aside. There was no direction to pay interest.
The Official Liquidator refused to pay any interest. The applicant-
auction purchaser thereupon filed an application before the
Supreme Court seeking clarification of the judgment dated 20th
April, 1999 and for direction that the applicant was entitled to
interest accrued on the purchase price of Rs.2 Crores. The
application was opposed by the creditors. Noticing the facts in
C.P.No.204/2003 Page 24
paragraph 12 of the judgment, the Supreme Court has observed
that in the facts of the said case, the Court had exercised their
discretion not to award interest, when the judgment dated 20th
April, 1999 was passed, setting aside the sale. In paragraph 10 of
the said judgment, it is clearly observed that whether or not
interest should be paid to the auction purchaser on the money
deposited by him if the sale is set aside, is a matter of discretion.
Thus, it is not held in paragraph 10 that interest cannot be paid to
the auction purchaser if the sale is set aside. In paragraph 11 of
the judgment, the Supreme Court has referred to decision in the
case of Motors & Investment Ltd. Vs. New Bank of India
(1997) 11 SCC 271. In the said case the Supreme Court had
ordered refund of purchase price along interest @ 18% per
annum. However, it was observed that there is no discussion on
the said aspect in the said decision. In the case of Central bank
of India Vs. Ravindra (2002) 1 SCC 367, the Supreme Court
discussed the concept and principle behind award of "interest"
and has held that interest is compensation for the use of the
money which a person is deprived of. Reference thereafter was
made to the decision of the Supreme Court in the case of Union
Bank of India Vs. Official Liquidator H.C. of Calcutta
(2000) 5 SCC 274, wherein the Court had exercised its discretion
and declined to award interest as in that case possession of the
property was given to the auction purchaser. It was noticed that in
the case of Motors & Investment (Supra), possession of the
property was not given to the purchaser. In the case of
Allahabad Bank (Supra) the applicant auction purchaser had
obtained possession even before he had paid the entire purchase
price and possession was given when he had paid only 25% or so
C.P.No.204/2003 Page 25
of the purchase price and had retained possession for 10 years.
The other aspect, which was noticed by the Supreme Court in the
case of Allahabad Bank (Supra) was regarding inadequacy of
sale consideration. What is apparent from the decision of the
Supreme Court in Allahabad Bank (Supra) is that these aspects
have to be kept in mind while deciding whether or not to award
interest to the auction purchaser and while exercising discretion
in terms of the Order 21 Rule 93 of the Code. It may be
appropriate here to refer to Goff & Jones, The Law of Restitution,
which has a separate chapter dealing with recovery of benefits
conferred under judgments or orders subsequently reversed or set
aside. In the said chapter reference is made to decision in the case
of Manning (1609) 8 Co.Rep 94b, which reads as under:-
"If the sale of the terms should be avoided,
the vendee would lose his term, and his
money, too, and thereupon great
inconvenience would follow, that none would
buy of the sheriff goods or chattels in such
cases, and so execution of judgments......would
not be done."
37. This reasoning was followed in Mani Lal Vs. Ganga
Prasad AIR 1951 Allahabad 832 and the following observation
was made:-
"5. In Bacon's Abridgement, it was laid down,
citing still older authorities, that :
"If a man recovers damages and lath executed
by fieri facias and upon the fieri facias the
sheriff sells to a stranger a term for years, and
after the judgment is reversed the party shall
be restored only to the money for which the
term was sold, and not to the term itself,
C.P.No.204/2003 Page 26
because the sheriff had sold it by the
command in the writ of fieri facias."
This principle was upheld in England in
numerous cases vide Mathew Manning's case
(1609) 8 Co. Rep. 94b, Bennet v. Hamill
(1806) 2 Sch. & Lef. 566 at p. 577, Bowen v.
Evans, (1844) 1 Jo. & Lat. 178 at p. 259. The
principle was applied by the Privy Council to
Indian cases in Zain-ul-Abdin Khan v.
Muhammad Asghar Ali Khan 10 ALL. 166. The
Privy Council after quoting from Bacon's
Abridgement observed that bona fide
purchasers who were no parties to the decree
had nothing to do further than to look to the
decree and to the order of sale. Their
Lordships pointed out the distinction between
a case in which the decree holder was the
auction purchaser, who was not protected
when the decree was set aside or modified,
and the case of a stranger auction-purchaser.
If the stranger auction-purchaser was a bona
fide purchaser, he was entitled to be
protected. This decision of the Privy Council
has been followed in several cases in India,
vide Piari Lal v. Hanif-un-nissa Bibi 38 ALL.
240, Balwant Singh v. Mt. Laiqa Begam
MANU/UP/0489/1923."
38. This brings us to the facts of the present case and to the
question whether or not discretion should be exercised to pay
interest on the amount deposited by the auction purchaser, if so,
at what rate.
39. Learned counsel for the management of BIPL has stated
that the present case is one of inadequacy of consideration and
this is the reason why the Supreme Court had set aside the sale in
the judgment dated 16th May, 2008 reported as 2008 (15) SCC 1
C.P.No.204/2003 Page 27
Reference in this regard is specifically made to the paragraphs 78
and 79 of the said decision.
40. In paragraph 78 of the said decision, the Supreme Court has
held that the company i.e., management of the BIPL had
committed wrongs and, therefore, its property had been sold in
the auction and even part of the property was taken out of the
country. CBL/CBIPL had employed a large number of workmen
and had started operating factory and, therefore, the relief, which
could be granted in the appeal, was an intricate question. At the
same time Supreme Court noticed that there was anxiety on the
part of the Court not to accept the sale in favour of CBL looking at
the claims of the secured creditors, other creditors and workmen.
Directions were issued in paragraph 79 including the discretion of
the company court to put the property for fresh auction after
appropriate valuation of the assets. I do not find anywhere in the
judgment there is a specific or direct finding that CBL is involved
in any fraud or had purchased the property for inadequate
consideration. It may be relevant to note here that in paragraph
79 of the judgment, the Supreme Court has stated that the
company Judge may consider the question for grant of some
preference to CBL and had allowed CBL to continue to function as
a Receiver. If CBL was guilty of fraud or was a purchaser for
inadequate sale consideration, these observations and grant
concession to CBL/CBIPL would not arise.
41. Learned counsel for the BIPL2 has relied upon a hand
written note/document and emphasized that CBL was negotiating
with the management of BIPL before they had participated in the
auction and given their bid. My attention was drawn to the fact
2
Corrected vide order dt. 28.1.2011
C.P.No.204/2003 Page 28
that CBL had filed an application before the civil/execution court
on or about 15th March, 2004. It was stated that this
note/document was filed before the Supreme Court and this
note/document shows that consideration/bid offered by CBL was
inadequate and was much less than CBL‟s own valuation. The
Supreme Court has not referred to this note/document. It is
noticed that several cuttings and remarks on the note/document,
have not been indicated in the true typed version. It is noticed
that what was auctioned, was the tangible property and not the
intellectual property rights in the brand or trade name.
Subsequently, the brand and trade name of BIPL were valued by a
Chartered Accountant appointed by the Court. The same were
valued at Rs. 35.88 Crores. Learned counsel for the CBL has
pointed out that bids were made by the ITC, Britania and a
company from Saudi Arabia. He submits that there was no
possibility of the bidders forming a cartel and deliberately
bringing down the auction price. Management of the BIPL was
given several and repeated opportunities to get a better offer/bid.
I need not go into this question in detail as there is no specific or
direct finding regarding under valuation or fraud by CBL. I have
quoted the reasons given by the Supreme Court for setting aside
the sale in the present case. It is noticed that the Supreme Court
has also adversely commented about the conduct of the
management of BIPL in their decision dated 16th May, 2008.
42. In the present case, possession of the property was handed
over to CBL on 3rd March, 20053 after they had deposited the
entire sale consideration on 13th August, 2004. It has also come
on record that CBL had stopped production and manufacturing in
3
Corrected vide order dt. 28.1.2011
C.P.No.204/2003 Page 29
the property after the order of the Supreme Court on 15th
September, 2008. CBL, however, has not placed on record the
date when they have started production or trial production. The
property was sealed and possession was taken by SICOM on 18th
July, 2003. Thus, for nearly two years the factory was closed and
was not functioning. There was no maintenance and the plant and
equipment was not operational. The CBL has incurred
expenditure to re-start the factory and make it operational. The
report given by Vaish and Associates, Chartered Accountants has
confirmed that expenditure was incurred by CBL/CBIPL to re-
start and making the factory operational. It is stated by
CBL/CBIPL that even after manufacturing was stopped on 15th
September, 2008, they have been keeping the machinery oiled
and in operational state. They are bound and shall abide by the
said statement.
43. Rs. 12.5 Crores was deposited by CBL with SICOM. Out of
this amount, Rs. 8 Crores was appropriated subject to right of
restitution by SICOM, IDBI and IFCI in terms of the order dated
3rd May, 2006. Prior to the said date, the amount deposited was
kept in an FDR. Rs. 4.5 Crores, which has not been appropriated,
has been kept in an FDR. Rs. 4.5 Crores was not directed to be
appropriated as this was meant for distribution amongst the
workmen. Rs. 8 Crores once appropriated by the SICOM, IDBI
and IFCI reduced the liability of BIPL to this extent towards
interest. BIPL or management of BIPL, therefore, gets advantage
of the said appropriation from the date the amount was
appropriated till repayment is made. The rate of interest charged
by the financial institutions, it is stated is about 18%. BIPL or
management of BIPL, gets benefit/advantage of this
C.P.No.204/2003 Page 30
deposit/appropriation by the financial institutions the extent of
Rs.8 Crores. At the same time CBL/CBIPL has used and utilized
the plant and equipment in the factory and has used the property
during the period from 3rd March, 2005 till 15th September, 2008.
CBL/CBPIL has used the plant and equipment, which has
depreciated and come down in value. ITCOT has stated that
plant/equipment at Sri Lanka is old but in good condition. They
must account for and pay and this aspect has to be kept in mind
while deciding the question of rate of interest. These factors
cannot be ignored. Rate of rent/mesne profits with reference/in
ratio to capital value of a property in India is low. Rate of annual
return in terms of mesne profit/rent is normally less than 5% of
the capital market value. CBL had taken over the factory for
manufacturing and sale of biscuits. A business like this has a
gestation period and only after sometime it starts giving returns.
As noticed above, the possession of the property remained with
CBL for a period of three and a half years from March, 2005 till
they stopped manufacturing activities on 15th September, 2008.
The reason given by CBL/CBIPL why they had to stop
manufacturing is that they were not able to get and procure funds
for running the factory. The report of Vaish and Associates,
Chartered Accountants shows that funds were transferred to
CBL/CBIPL in India for startup, operation, maintenance, running
costs, watch and ward expenses etc. The property was dead
capital investment for CBL from 13the August, 2004 till 3rd
March, 2005, when possession was given and then again from 15th
September, 2008 when the operations were shut down. Thus, out
of the period of more than six years, between 13th August, 2004
till today, the factory has been in operation for three years and six
C.P.No.204/2003 Page 31
months (except equipment/plant in Sri Lanka).
44. Keeping in view all these aspects in mind and balancing out
equities, I feel that CBL should be given interest @ 5% on the
entire Rs. 12.5 Crores from the date of payment till 10th January,
2011. SICOM had initially deposited the entire sale consideration
into an FDR and even now Rs. 4.5 Crores is lying deposited in
FDRs. BIPL or management of BIPL will get advantage of the
amount of Rs. 8 Crores, which was appropriated by SICOM, IDBI
and IFCI from the date of appropriation. BIPL or management of
BIPL will not be liable to pay interest to the said financial
institutions @ 18% during the time when this amount was
appropriated. Of course after the financial institutions make
payment of Rs. 8 Crores, the BIPL or management of BIPL will be
liable to pay the rate of interest chargeable as per law to the
financial institutions. This means that the BIPL or management
of BIPL will get benefit to the extent of nearly 13% on Rs. 8
Crores, which has been appropriated by the financial institutions.
(18% less 5% interest awarded to CBL. BIPL or its Management
will be liable to pay 5% interest to the financial institutions on Rs.
8 Crores.) Difference between the interest earned on FDRs of Rs.
12.5 Crores and Rs. 4.5 Crores and 5% interest now awarded to
CBL will also enure to the benefit of BIPL/Management of BIPL.
Thus the effective rate of return towards mesne
profit/depreciation for BIPL/Management of BIPL will be about
9% on Rs. 12.50 crores/bid value. It is made clear that CBL will
not be entitled to any further charges/expenses on account of
maintenance, keeping up etc. or for re-starting the factory and
making it operational. The interest figure will include all expenses
payable to them for upkeep, maintenance, watch and ward etc.
C.P.No.204/2003 Page 32
45. Rs. 8.5 Crores will be refunded by the financial institutions
on or before 10th January, 2011 to CBL. The CBL will re-install the
Lines 5 and 6 and other equipments, which were taken away to
Sri Lanka, within a period of four months. The interest amount
and Rs.4 Crores will be paid to CBL after Lines 5 and 6 and other
equipments are re-installed and the expert appointed by the
Court has certified that the Lines 5 and 6 and other equipments,
are in operational condition/state. Till then the CBL will continue
to act as a Receiver and maintain the plant and machinery and
keep them in operational state but not use them.
46. It is clarified that CBL will continue to be a Receiver till
further orders and the possession of the plant and equipment as
well as factory belonging to BIPL is with the Court and not with
CBL. CBL/CBIPL will be liable to pay the statutory dues and
liabilities for the period till the factory was in operation i.e. till 15th
September, 2008 and workmen‟s due till they vacate. Payment of
Rs. 4 crores and the interest will be released only after the Court
is satisfied that the statutory dues and liabilities and workmen‟s
dues have been paid. Rs. 11.20 lakhs on account of missing plant
and equipment will be deducted while making payment of Rs. 8.5
crores4 and no interest will be payable for the same.
47. The last question is whether management of BIPL should be
allowed to inspect the premises and whether the matter should be
adjourned to enable the management of the BIPL to submit a
scheme for rehabilitation and payment to the creditors. As far as
inspection of the property is concerned, I think the same should
be allowed. I reject the opposition by CBL/CBIPL that inspection
by management of BIPL would result in infringement of their
4
Corrected vide order dated 28.1.2011
C.P.No.204/2003 Page 33
intellectual property right as they have installed specialized
equipments. It will be open to CBL or CBIPL to remove the said
equipment within a period of three weeks from today. CBL/CBIPL
will inform the Official Liquidator at least 5 days in advance as to
the date on which they want to remove their equipment.
Equipment will be removed in the presence of the Official
Liquidator or his representatives. It will be open to the Official
Liquidator to ask ITCOT or their representative to be present at
that time. Immediately after removal of the equipment,
management of BIPL will be given notice by CBL/CBIPL to
inspect the property. Even if the said equipment is not removed
within three weeks, inspection will be permitted and allowed to
the management of the BIPL after three weeks.
48. In the present case SICOM took possession of the factory on
18th March, 2003. It has been almost 7 years since then. Order
sheet reveals that management of BIPL was given several
opportunities to give proposal/scheme or get a higher bidder or
purchaser. Management of BIPL has failed to get hold of any
bidder or furnish any proposal/scheme, though opportunities
were granted. I do not agree with the counsel for the management
of the BIPL that there were unable to give any proposal as
inspection of the property has not been allowed. This is an excuse,
which cannot be accepted. Management of the BIPL has not
furnished name or details of any proposal given to them by a third
party. Management of BIPL themselves are not in a position to
propound a scheme for payment of the dues and for re-starting
the business. It is noticed that in 2004, the same management as
per their own case, had got in touch with CBL when the factory
was lying closed and sealed. The fact that CBL was not permitted
C.P.No.204/2003 Page 34
inspection of the factory, did not debar or prevent management of
BIPL from negotiating with the CBL.
49. The Official Liquidator was appointed as a provisional
liquidator on 6th April, 2004. At this stage, we have to keep in
mind interest of the creditors and workmen. Interest of the
promoters or members/management of the company is relevant
but not as important as interest of creditors and workmen. We
have to also keep in mind the fact that 7 years have lapsed and
unless immediate steps are taken, the value of the plant and
equipments will depreciate. Supreme Court in the judgment dated
16th May, 2008 has quoted the following passage from Farar‟s
Company Law:-
"74. ......We may notice the observations made
by the learned author:
"As we have seen, Directors do not
owe duties to shareholders as such.
Neither do they owe duties to the
company‟s creditors. The orthodox
position being as stated by Dillon, L.J.
in Multinational Gas and
Petrochemical Co. v. Multinational
Gas & Petrochemical Services Ltd.
Directors owe fiduciary duties to the
company though not to the creditors,
present or future, or individual
shareholders.
Winkworth v. Edward Baron Development
Co. Ltd., a House of Lords decision, might
suggest that there has been a change to that
position with Lord Templeman stating:
„... a company ownes a duty to its
creditors, present and future. The
company owes a duty to its creditors
to keep its property inviolate and
available for repayment of its debts.
C.P.No.204/2003 Page 35
The conscience of the company, as
well as its management, is confided
to its Directors. A duty is owed by the
Directors to the company and to the
creditors of the company to ensure
that the affairs of the company are
properly administered and that its
property is not dissipated or
exploited for the benefit of the
Directors themselves to the prejudice
of the creditors.‟ "
The learned author furthermore observed:
"Support here for this approach
can be found in West Mercia
Safetywear Ltd. v. Dodd where
Dillon, L.J. approved the following
statement of the position by the New
South Wales Court of Appeal in
Kinsela v. Russell Kinsela Pty Ltd.:
„In a solvent company the
proprietary interests of the
shareholders entitle them as a general
body to be regarded as the company
when questions of the duty of
Directors arise. If as a general body,
they authorise or ratify a particular
action of the Director, there can be no
challenge to the validity of what the
Directors have done. But where a
company is insolvent, the interests of
the creditors intrude. They become
prospectively entitled through the
mechanism of liquidation, to displace
the power of the shareholders and
Directors to deal with the company‟s
assets. It is in a practical sense their
assets and not the shareholders‟ assets
that through the medium of the
company are under the management
of the Directors pending either
liquidation, return to solvency, or the
C.P.No.204/2003 Page 36
imposition of some alternative
administration.‟ "
50. At the same time, issue of fresh sale proclamation on the
basis of the valuation report submitted by ITCOT is likely to take
time. It will be open to the management of BIPL5 to negotiate and
submit a proposal/scheme from a third party in the integram. I
am not inclined to adjourn the matter to enable the management
of BIPL to find a third party and file an application propounding a
scheme as this would cause delay. It will be open to the
management or any third party associated with them to
participate in the auction/bidding process. The primary concern
of the company court at this stage as stated above is twofold; (i) to
secure and ensure payment to the creditors on best possible
terms and (ii) to get a fair deal for the workers both with regard to
the past arrears and future employment. These aspects cannot be
left to the management of the BIPL6 alone. Attempts have to be
made to get a best possible deal by tapping all sources and parties,
who are interested.
C.A.Nos.900/2008 filed by CBL, 1767/2010, filed by the
management of the BIPL7 and 495/2010, filed by the Official
Liquidator are accordingly disposed of.
SANJIV KHANNA, J.
DECEMBER 20, 2010 VKR/NA /P/VJ/PR 5 Corrected vide order dated 28.1.2011 6 Corrected vide order dated 28.1.2011 7 Corrected vide order dated 28.1.2011 C.P.No.204/2003 Page 37