Karnataka High Court
The India Sugars And Refineries Limited vs Ifci Ltd on 18 January, 2023
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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WP No. 1486 of 2021
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 18TH DAY OF JANUARY, 2023
BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
WRIT PETITION NO. 1486 OF 2021 (GM-RES)
BETWEEN:
1. THE INDIA SUGARS AND REFINERIES LIMITED,
A COMPANY REGISTERED UNDER THE COMPANIES
ACT 1956, HAVING ITS OFFICE AT 102 AND 108,
MIDFORD HOUSE, OFF. M.G.ROAD,
BANGALORE-560 001.
REPRESENTED HEREIN BY ITS MANAGER-FINANCE
MR.P.S. KRISHNAMURTHY,
S/O P.K.SOUNDARRAJAN,
AGED ABOUT 61 YEARS.
...PETITIONER
(BY SRI. S. RAJESH, SENIOR ADVOCATE FOR
SRI. B.R. VIVEK AND SRI. KASHYAP N. NAIK, ADVOCATES)
AND:
1. IFCI LTD.,
Digitally signed by A COMPANY REGISTERED UNDER THE COMPANIES
PADMAVATHI B K
ACT 1956, HAVING ITS OFFICE AT IFCI TOWER, 61,
Location: HIGH
COURT OF NEHRU PLACE,
KARNATAKA
NEW DELHI-110 019
REPRESENTED HEREIN BY ITS GENERAL MANAGER.
2. SUGAR DEVELOPMENT FUND,
THROUGH ITS DIRECTGOR SDF.,
DEPARTMENT OF FOOD AND PUBLIC DISTRIBUTION,
DTE OF SUGAR, KRISHI BHAVAN,
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WP No. 1486 of 2021
NEW DELHI-110 001
REPRESENTED BY ITS DIRECTOR.
3. I.S.R. WORKERS UNION,
BEARING REGISTRATION NO.31/B.D.
HAVING ITS OFFICE AT 3-179, PATEL NAGAR,
HOSPET, BELLARY DISTRICT-583 211,
REPRESEMTED HEREIN BY ITS PRESIDENT,
MR.M.D.GHOUSE.
4. UNION OF INDIA,
GOVERNMENT OF INDIA,
MINISTRY OF CONSUMER AFFAIRS,
DEPARTMENT OF FOOD AND PUBLIC DISTRIBUTION,
KRISHI BHAVAN, NEW DELHI-110 001.
5. THE JOINT SECRETARY
(SUGAR AND ADMIN),
GOVERNMENT OF INDIA,
MINISTRY OF CONSUMER AFFAIRS,
DEPARTMENT OF FOOD AND PUBLIC DISTRIBUTION,
KRISHI BHAVAN, NEW DELHI-110 001.
...RESPONDENTS
(BY SRI. K. NAGENDRA KUMAR, ADVOCATE FOR R1 AND R2;
SRI. M. SUBRAMANYA BHAT, ADVOCATE FOR R3;
SMT. H. SHANTHI BHUSHAN, DSGI FOR R4 AND R5)
THIS WP IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED
NOTICES DATED 04.10.2018, 13.11.2018 AND 25.04.2019
VIDE ANNEXURES- 'A', 'B' 'C' RESPECTIVELY;
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WP No. 1486 of 2021
HOLD THAT THE RATE OF INTEREST APPLICABLE IS 2.5%
AS PER THE AGREEMENT DATED 13.01.2004 AND THE
NOTIFICATION DATED 30.07.2012 AT ANNEXURE-Q DOES NOT
APPLY;
AND DIRECT THE RESPONDENTS 1 AND 2 TO
CRYSTALIZE THE DUES PAYABLE BY THE PETITIONER -
COMPANY IN TERMS OF SANCTION LETTER DATED 07.04.2003
AND AGREEMENT DATED 13.01.2004 AS PER ANNEXURES - 'D'
AND 'E', ETC.
THIS PETITION, COMING ON FOR PRELIMINARY
HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
1. The petitioner calls in question, the notices dated 04.10.2018, 13.11.2018 and 25.04.2019 which directed the petitioner to make a payment of 6% penal interest on account of the default in payment and has also sought for a direction for issuance of a writ in the nature of mandamus to hold that additional interest has to be fixed at 2.5% per annum in terms of the Agreement dated 13.01.2004.
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2. Shorn of unnecessary details, facts in brief germane, are as follows:
The petitioner - India Sugars & Refineries Limited ('Company' for short) seeks finance from the Industrial Finance Corporation of India Ltd. (IFCI) to run the business of sugar production and distribution. In furtherance of the request for finance from the first respondent, an Agreement comes to be entered into between the petitioner and the IFCI on 13.01.2004 on certain conditions for disbursement of the loan as sought by the petitioner. The petitioner appears to have defaulted in making payment on account of alleged losses that he has suffered in the operation of the company. This results in certain proceedings being instituted against the petitioner.
What drives the petitioner to this Court in this petition is the demand of the first respondent for payment of 6% of penal interest on account of the default of the petitioner in making the payment. This Court in terms of several orders passed, permitted the property of the petitioner to be sold and the remainder of the amount to be deposited before this Court for -5- WP No. 1486 of 2021 the purpose of disbursement of dues to the labourers of the company.
3. The learned Senior Counsel appearing for the petitioner would contend with vehemence that an agreement was entered into between the petitioner and the IFCI on 13.01.2004. In terms of sub-clause (ii) of Clauses 3 of the said agreement what is payable by the petitioner was simple interest at the rate of 6% per annum or as may be prescribed by the Central Government from time to time from the date of its release to the IFCI. The learned Senior Counsel further contends that sub-clause (viii) therein depicts that in case of default in repayment, it would attract an additional interest at the rate of 2.5% per annum to be paid on account of such default by the borrower.
4.1 The learned Senior Counsel taking this Court through the relevant statutes would contend that in so far as the clause relating to penal interest is concerned, it undergoes a change on 30.07.2012, when the statute comes to be amended by way of substitution, that in case of any default in repayment, the -6- WP No. 1486 of 2021 additional interest would be 6% per annum, in place of 2.5% per annum hitherto imposable.
4.2 Learned Senior Counsel would contend that the contract had been concluded by the time the amendment came about and therefore, a concluded contract could not have been tinkered with demand of 6% interest per annum. He would seek the petition be allowed and the notices impugned, be quashed.
5. On the other hand, the learned counsel representing the IFCI would refute his submissions, to contend that amendment is by way of substitution, and thus it dates back, has retrospective effect, and comes into operation when the agreement was executed between the parties and therefore the petitioner is bound to pay 6% penal interest, on account of any default in payment.
6. The learned DSGI would also toe the lines of the learned counsel for the respondent to contend that the petitioner should be made liable to pay 6% penal interest as amended on 30.07.2012.
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7. The learned counsel Sri. Subramanya Bhat representing the labourers of the Company would submit that for the last eleven years, the dues of the labourers are not paid, it is therefore this Court permitted sale of the assets of the Company and directed deposit of the remainder of the amount before this Court, so that it could be disbursed to the labourers. He would seek a direction at the hands of this Court for immediate disbursement of the amount, due to the labourers.
8. I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record.
9. The aforesaid facts, though not in dispute, would require a narration in a little more detail. The petitioner approaches the first respondent IFCI seeking finance for their business. On its approval by the Government of India, a contract comes to be entered into between the parties i.e., the petitioner and the first respondent IFCI. Certain covenants of the contract are germane to be noticed. They read as follows: -8- WP No. 1486 of 2021
"This Agreement made at New Delhi on the 13th Day of January, Two thousand and Four between M/s. The India Sugars & Refineries Limited, the Company within the meaning of the Companies Act, 1956 and having its Registered office at Chitwadgi-583211, Hospet, Bellary District, Karnataka and owner of sugar Undertaking named as The India Sugars & Refineries Limited located at Chitwadgi-583211, Hospet, Bellary District in the State of Karnataka and registered under the Industries Development & Regulation Act, 1951 with I.L.No.108(77) dated the 20.08.1977 hereinafter called the "Borrower" (which expression shall, unless it be repugnant to the subject or context thereof, include its successors and assigns) of the First Part, IFCI Ltd., a Company incorporated under the Companies Act, 1956 and having its Registered Office at IFCI Tower, 61, Nehru Place, New Delhi-110019 hereinafter called the "IFCI"((which expression shall, unless it be repugnant to the context or meaning thereof, include its successors and assigns) of the second part, the "Government of Karnataka" as the Third Part, the "Karnataka State Industrial Investment and Development Corporation Limited" having its Registered Office at MSIL House, 36, Cunningham Road, Bangalore, Karnataka, hereinafter called the "KSIIDC" (which expression shall, unless it be repugnant to the context or meaning thereof include its successors and assigns), the participating Financial Institution as the Fourth Part and the President of India -9- WP No. 1486 of 2021 hereinafter called the "Central Government of the Fifth Part.
(1) Whereas the Central Government under the Sugar Development Fund Act, 1982 (Act 4 of 1982) have created Sugar Development Fund (hereinafter referred to as the "Fund") to provide for the financing of activities for facilitating the modernisation/rehabilitation of plant and machinery of Sugar Industry and for the purpose of administering the Fund, have framed the Sugar Development Fund Rules, 1983(hereinafter called "the Rules").
xxxxxxx xxxxxxx In consideration of the premises, a sum of Rs.528 Lakhs (Rupees Five Hundred and Twenty Eight lakhs only) shall be paid by the Central Government directly to the IfCI for disbursement to the Borrower as loan in such installments and on such terms and conditions as may be contained in the letter of the Central Government sanctioning the said amount (hereinafter referred to as the "sanction letter") which will be treated as part of the agreement.
i) The IFCI shall treat the amount paid to it for disbursement to the Sugar Undertaking as the promoters contribution, or as part thereof, required to be raised by the Sugar undertaking for availing of the
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loan under its relevant scheme for modernisation and rehabilitation.
ii) The amount of loan advanced shall carry a simple interest at the rate of 6 percent per annum or as may be decided by the Central Government from time to time from the date of its release to the IFCI.
xxxxxxx xxxxxxx
viii) In case of any default in repayment of installment of loan and interest thereupon in accordance with the provisions of the sanction letter, an additional interest at the rate of two and half percent per annum on the amount in default shall be payable by the Borrower."
10. Sub-clause (ii) of Clause 3 of the contract directs that the amount of loan carries interest at 6 per cent per annum or as may be decided by the Central Government from time to time from the date of its release to the first respondent. Sub-clause
(viii) of Clause 3 would indicate that on default in repayment of the instalment of loan and interest thereupon, in accordance with the provisions of the sanction letter, an additional interest at the rate of 2.5% per annum on account of the said default
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WP No. 1486 of 2021would become payable by the borrower i.e., the petitioner. The agreement is on the basis of the relevant subsisting statute i.e. the Sugar Development Fund Rules, 1983.
11. The Sugar Development Fund Rules, 1983 in so far as the loans for potentially viable Sick Sugar Undertaking reads as follows:
21. (1) A potentially viable sick sugar undertaking shall be eligible for a loan for the Modernization or rehabilitation of plant and machinery :
Provided that the loan from the Fund has been recommended in the rehabilitation scheme for the potentially viable sick sugar undertaking by the Board for Industrial and Financial Reconstruction or the Committee for rehabilitation, as the case may be:
Provided further that the scheme or project for such modernization or rehabilitation of its plant and machinery is approved for financial assistance by a financial institution or a scheduled bank under its relevant scheme or sponsored by the Technology, Information, Forecasting and Assessment Council in respect of Scheme Mission Mode Project on Sugar Production Technologies of the Department of Science and Technology for modernization or rehabilitation of its plant and machinery:
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Provided also that a sugar undertaking shall not be eligible for a loan under this rule if more than one loan under rule 16 or rule 22 or rule 23 remains to be fully repaid.
xxxxx xxxxx 11(iii) The loan from the Fund shall carry a concessional rate of simple interest of [two per cent below the rank rate] (substituted for the words "six per cent per annum" w.e.f. 21.10.2004) and in case of any default in repayment of the amount of loan, or payment of any instalment thereof or interest thereon, an additional interest at the rate of two and half per cent per annum of the amount of default shall be payable by the sugar undertaking."
12. The rate of 2.5% interest on default in payment was fixed in the contract (supra) had its foundation in the statute. Sub- rule (11) of Rule 21 mandates that upon any default of payment of the amount of loan or payment of any instalment thereof, an additional interest at the rate of 2.5% per annum of the amount in default shall be payable by the sugar undertaking. Therefore the agreement entered into between
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WP No. 1486 of 2021the parties in the year 2004 i.e. on 13.01.2004 was on the basis of the Sugar Development Fund Rules, 1983. Petitioner appears to have defaulted in making the payment which led the first respondent to initiate several proceedings against the petitioner. Those proceedings are not the subject matter of the present lis.
13. The Sugar Development Fund (Amendment) Rules, 2012 is notified by the Central Government on 30.07.2012. The amendment in so far as it is germane reads as follows:
[Chapter XIV] 1 Security, interest and additional interest on Sugar Development Fund loans
25. (1) The security, interest and additional interest for the loans given under [Sugar Development Fund Rules 16, 16A, 17, 17A, 21, 22 and 23] 2 from the Fund shall be governed as follows.
(2) The loans shall carry a concessional rate of simple interest of 2% below the Bank Rate.
(3) In case of any default in repayment of the amount of loan or payment of any instalment thereof or interest thereon, an additional interest at the rate of [six percent per annum on the amount of default or at such rate as may be
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WP No. 1486 of 20213 decided by the Central Government shall be] payable by the sugar undertaking.
(4) The sugar undertaking shall, after the execution of the agreement required to be entered into and before the disbursement of the loan under Rules, furnish security for the loan to the satisfaction of the Central Government. (5) The security shall cover the amount of loan and interest thereon for the full period of repayment as provided in the Rules and further additional interest on the amount of default as provided in sub-rule (3) above, and shall be furnished in any of the following manners namely:-
(i) Bank Guarantee from a Scheduled Bank; or
(ii) A mortgage on all immovable and movable properties of the sugar factory on pari passu first charge basis failing which on the basis of an exclusive second charge:
Provided that [in case of short term loans under Rules 16A and 17A, any sugar undertaking and] 4 in case of sugarcane development loan under Rules 17 and 21, a cooperative sugar undertaking can furnish the security in the form of State Government Guarantee."
1. inserted vide GSR 188(E) dt.9.3.07
2. substituted vide GSR 508(E) dt. 7.7.09 for "Sugar Development Fund Rules 16,17,21,22 and 23"
3. substituted vide GSR 599 dated 30.07.2012
4. inserted vide GSR 508(E) dt.7.7.09
5. substituted vide GSR 599 dated 30.07.2012
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14. In terms of what is afore-extracted, sub-clause (iii) of Clause 21(11) under Chapter X of the Sugar Development Fund Rules, 1983, comes to be amended by reading that any default in repayment of the amount of loan or payment of instalment or interest thereon, an additional interest at the rate of 6% per annum would become payable on such default by the sugar undertaking. This is an amendment by way of substitution. It comes into effect from 30.07.2012. The first respondent directs the petitioner to pay interest at 6% per annum for its default in payment. The petitioner being in default in payment is not in dispute.
Therefore the kernal of this conundrum concerns the rate at which the petitioner has to pay the first respondent for its default in payment by way of additional rate of interest, is it 2.5% per annum or 6% per annum?
15. The aforementioned agreement was entered into on 13.01.2004. The statute that was subsisting as on the said date was Sugar Development Fund Rules, 1983. The conditions
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WP No. 1486 of 2021stipulated in the agreement were qua the relevant Rules of Sugar Development Fund Rules, 1983. The demand now made is in terms of the Sugar Development Fund (Amendment) Rules, 2012 which makes it at 6% interest per annum.
16. In the considered view of this Court, the first respondent cannot demand penal interest @ 6% per annum in terms of a statute that comes to be amended in the year 2012, that too without the statute expressly depicting retrospectivity. The amendment when comes about by way of substitution, would relate back to the date of the Sugar Development Fund Rules, 1983. The intervening circumstance is that the parties are bound by a concluded contract. The contract between the petitioner and first respondent as observed hereinabove was in the year 2004 and the contract stood concluded by its execution long before the Sugar Development Fund (Amendment) Rules, 2012, came about.
17. If the first respondent is now permitted to demand the interest for the defaulted payment in terms of Sugar Development Fund (Amendment) Rules, 2012, it would amount
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WP No. 1486 of 2021to unilateral novation of a concluded contract, on the strength of a statute of the year 2012 which comes long after the contract. Reference being made to the judgment of the Apex Court in the case of DELHI DEVELOPMENT AUTHORITY AND ANOTHER V. JOINT ACTION COMMITTEE, ALLOTTEE OF SFS FLATS AND OTHERS1 in the circumstances becomes apposite . The Apex Court holds as follows:
".... .... ....
Was it a restoration scheme?
61. The office orders, on the basis whereof the purported impugned policy had been taken, do not refer to the Scheme as a restoration scheme. The resolutions do not say so. Had it been so, DDA would have issued a fresh notification or at least made its stand clear to the allottees either by way of public notice or by informing each of such defaulters individually. Had such conditions for the purpose of restoration being made known, the allottees would have accepted it or rejected it. Evidently, it is a part of the original Scheme. It is not a new one.
62. It is well-known principle of law that a person would be bound by the terms of the contract subject of course to its validity. A contract in certain situations may also be avoided. With a view to make novation of a contract binding and in particular some of the terms and conditions thereof, the offeree must be made known thereabout. A party to the contract cannot at a later stage, while the contract was being performed, impose terms and conditions which were not part of the offer and 1 (2008)2 SCC 672
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WP No. 1486 of 2021which were based upon unilateral issuance of office orders, but not communicated to the other party to the contract and which were not even the subject- matter of a public notice. Apart from the fact that the parties rightly or wrongly proceeded on the basis that the demand by way of fifth instalment was a part of the original Scheme, DDA in its counter-affidavit either before the High Court or before us did not raise any contra plea. Submissions of Mr Jaitley in this behalf could have been taken into consideration only if they were pleaded in the counter-affidavit filed by DDA before the High Court.
.... .... ....
80. A definite price is an essential element of binding agreement. A definite price although need not be stated in the contract but it must be worked out on some premise as was laid down in the contract. A contract cannot be uncertain. It must not be vague. Section 29 of the Contract Act reads as under:
"29. Agreements void for uncertainty.-- Agreements, the meaning of which is not certain, or capable of being made certain, are void."
A contract, therefore, must be construed so as to lead to a conclusion that the parties understood the meaning thereof. The terms of agreement cannot be vague or indefinite. No mechanism has been provided for interpretation of the terms of the contract. When a contract has been worked out, a fresh liability cannot be thrust upon a contracting party."
(Emphasis supplied) In the light of the judgment of the Apex Court if the undisputed facts obtaining in the case at hand are noticed, the demand
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WP No. 1486 of 2021made would become contrary to law. Therefore the demand of 6% penal interest by the first respondent on the basis of Sugar Development Fund (Amendment) Rules, 2012, is unsustainable and the notices issued, impugned in the petition on the strength of Sugar Development Amendment Rules, 2012, are rendered unsustainable.
18. Learned Senior Counsel appearing for the petitioner at this juncture would submit that pursuant to the interim orders granted by this Court, the petitioner has deposited an amount in tune with the Amendment Rules i.e. 6% penal interest, before the first respondent. In the light of the aforesaid finding that demand of 6% penal interest was not in tune with law, the first respondent will now have to consider refund of the amount beyond 2.5% penal interest. He would further submit that an amount of Rs.8.5 Crores is in deposit before this Court which is the proceeds of sale pursuant to the liberty granted by this Court to sell the properties and deposit the remainder of the amount after fulfilling the dues of the first respondent and therefore, Rs.8.5 Crores is in deposit before this Court.
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WP No. 1486 of 2021
19. Learned counsel Sri. Subramanya Bhat appearing for the labourers would submit that the labourers have a charge over the said amount as the dues of the labourers is to the tune of Rs.29 Crores which is to be paid by the petitioner. Learned Senior Counsel would submit that the amount is Rs.29 Crores is disputed, as in terms of the books of accounts with the Company, the dues would be only Rs.7.33 Crores. Therefore, it is in the realm of disputed question of fact as there is a dispute with regard to quantum. Learned counsel Sri. Subramanya Bhat would submit that claiming the said dues, the labourers are before the Industrial Tribunal, in so far as the wages are concerned, and before the Controlling Authority in so far as payment of gratuity is concerned. Therefore, in the peculiar facts and, to redress the grievances of the labourers, I deem it appropriate to direct the petitioner to disburse Rs.7.33 Crores which according to him is due to the labourers, forthwith, without prejudice to the right of the labourers to continue their agitation before the concerned fora for the claim of any other amount or difference in amount i.e. wages or gratuity. I direct
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WP No. 1486 of 2021so, as the labourers would get some amount, out of their dues, which they have not seen for the last eleven years.
20. The petitioner would be at liberty to withdraw the amount in deposit before this Court along with interest, for the purpose of disbursement of dues to the employees. It shall be disbursed as expeditiously as possible, at any rate within four weeks from the date of receipt of a copy of this Order. A memo of such disbursement be filed before the Registry regarding the aforesaid compliance.
21. The first respondent shall in terms of this Order, consider the refund of the amount in deposit beyond 2.5%, deposited as penal interest back to the petitioner. Learned Senior Counsel seeks a direction to the first respondent to issue a discharge certificate indicating discharge of all loan liabilities and return of all the documents of assets.
22. The petitioner and the labourers have a dispute with regard to the quantum of payment. According to the petitioner, it is Rs.7.33 Crores. According to the learned counsel appearing for the labourers, it is Rs.29 Crores. Therefore, the petitioner
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WP No. 1486 of 2021shall not liquidate/sell the property to the tune of Rs.22 Crores out of the properties in its possession which would form any determination of the dues of the labourers, pending consideration before the Industrial Tribunal and the Controlling Authority under the Payment of Gratuity Act.
23. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition is allowed in part.
(ii) The impugned noticed dated 04.10.2018, 13.11.2018 AND 25.04.2019 vide annexures- 'A', 'B' and 'C' respectively, stand quashed.
(iii) The first respondent shall consider refund of the amount that is paid to them during the pendency of this petition i.e. penal interest at 6% per annum, by withholding 2.5% penal interest per annum, and refund the excess deposit.
(iv) The first respondent shall issue such necessary certificates within eight weeks from the date of receipt of a copy of this order, if not earlier.
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(v) The petitioner is at liberty to withdraw the amount in deposit before this Court.
(vi) The receipt of aforesaid dues by the labourers is without prejudice, to their right in various claims before any competent fora - judicial or quasi judicial.
(vii) The petitioner is restrained from selling the property worth Rs.22 Crores and is at liberty to liquidate other assets which would be subject to the orders passed by the Industrial Tribunal.
(viii) Pending applications if any, do not survive for consideration.
Sd/-
JUDGE sac List No.: 1 Sl No.: 32