Gujarat High Court
The vs The
Author: Jayant Patel
Bench: Jayant Patel
SCA/10590/2007 16/ 16 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 10590 of 2007 ========================================================= THE SABARKANTHA CENTRAL COOPERATIVE BANK LTD - Petitioner(s) Versus THE REGISTRAR & 1 - Respondent(s) ========================================================= Appearance : MR SN THAKKAR for Petitioner(s) : 1, NOTICE SERVED for Respondent(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 1, MR DG CHAUHAN for Respondent(s) : 2, ========================================================= CORAM : HONOURABLE MR.JUSTICE JAYANT PATEL Date : 25/01/2008 ORAL ORDER
Heard Mr. Thakkar for the petitioner, Mr.Shukla, learned AGP for the State Authorities and Mr. Chauhan for the liquidator.
Prima facie it appears that earlier there was a circular of the Registrar, Cooperative Societies for fixation of the priority by the liquidator for making payment on the bases of the claims which are found as genuine by the liquidator. The same was the subject matter of Special Civil Application No. 20104 of 2006 and allied matters which came to be decided by this Court(Coram:D.A. Mehta) vide order dated 01.12.2006 and 02.12.2006. As per the view taken by this Court, the liquidator has to independently examine the matter for the fixation of priority and the circular of the Registrar would not be binding to the liquidator and thereafter, the observations have been made by this Court that the liquidator shall decide the order of priority of his own without being influenced by any circular of the Registrar.
It appears that thereafter, the matter was also carried before the Letters Patent Appeal Bench and in the Letters Patent Appeal, as the circular was withdrawn, which was subject matter of challenge in the aforesaid proceedings, the matter ended at that stage. It appears that in the meantime, the another circular also came to be issued and as such, in view of the above referred Judgement of this Court, the circular was not binding to the liquidator and the liquidator had to independently examine the matter.
As per the petitioner, the claim was submitted and the prayer was also made to fix up the priority. However, it is the grievance of the petitioner that no priority was fixed nor adjudication of the claim by the liquidator and he proceeded to disburse the amount and therefore, the present petition.
Whereas, as per the respondent liquidator, he considered the matter and being guided by the circular of the Registrar, proceeded to make the payment and it is the case of the liquidator that the priority is also fixed by him.
It appears that this Court (Coram:D.A. Mehta, J.) on 11.12.2007, passed the following order:
ýS1. This petition has been preferred with a basic grievance that despite the Judgment and Order made by this Court quashing and setting aside the Circulars issued by the Registrar, respondent No.1, in relation to fixation of priority of the creditors and disbursement of the funds as per directions of the Registrar, the Liquidator, respondent No.2, is persisting with disbursing the funds in accordance with Circular / Oral Instructions issued by the Registrar. On 23rd April, 2007 the Court issued Notice making it returnable on 8th May, 2007.
2. Thereafter, the respondents have put in appearance and respondent No.2 has filed an Affidavit dated 11th July, 2007 sworn by the then Liquidator, Shri Amrutbhai Punjabhai Patel. In paragraph No.5 and in paragraph No. 7 of the said Affidavit-in-reply, the following averments have been made:
ýS5. Thereafter, in exercise of the statutory powers conferred by Section 110 of the Act, the respondent No.2 had sold plant and machinery, building, stores, stocks, furniture, fixtures, office equipments etc. for a sum of Rs.3.53 crores. I say that about Rs.3.15 crores have been disbursed to various Creditors of the Mill company in accordance with Law on priority basis. I say that yet, about Rs.16 lacs are to be paid to the concerned workers towards their gratuity i.e. 50%. The claim of the petitioner would be considered in accordance with law. I say that Section 110(e) does not require any personal hearing to be given to the petitioner. I deny that the action of the respondent No.2 is illegal, in gross breach of the mandatory procedure as prescribed in Section 110 of the Act and unreasonable.
7. I respectfully submit that Section 110 deals with the powers of the Liquidator. The said powers are to be exercised by the Liquidator subject to the Rules and the general supervision, control and direction of the Registrar. I say that in view of the Judgment dated 02.12.2006 passed by this Hon'ble Court in Special Civil Application No.20104 of 2006, the respondent No.2 is bound to act in accordance with law declared by this Hon'ble High Court. I reiterate and submit that the provisions of the Act do not contemplate an opportunity of hearing to be given to the petitioner before fixing priorities. I say that the claim of the petitioner would be considered in accordance with law. The statements of facts and/or allegations made in this petition are incorrect, ill-founded and I deny the sameýý.
It is further stated in the said Affidavit that the dues of the workers have been paid in accordance with law and as per the priority without specifying as to:
Who had fixed the order of priority;
When were the funds disbursed.
3. Hence, on 09.10.2007, the following order came to be made by the Court.
Date : 09/10/2007 ORAL ORDER ýSThe learned advocate for respondent No. 2, The Liquidator, Sabarkantha Jilla Roo Utpadakoni Co-operative Spinning Mill, prays for time to place on record the steps taken, including order of priority fixed after the date of judgement of this Court, namely, 2.12.2006, made in Special Civil Application No. 20104 of 2006 and cognate matters in the case of FEDRATION OF KHEDA DIST. CO-OPERATIVE CREDIT SO. LTD. VS. STATE OF GUJARAT. The same shall be filed on or before 19.10.2007. Rejoinder, if any, to be filed on or before 26.10.2007. The matter to come up on 30.10.2007ýý.
Sd/-
(D.A. MEHTA, J)
4. On 24.10.2007, the said gentleman, Shri Amrutbhai Punjabhai Patel, the then Liquidator tendered an additional Affidavit and stated in paragraph No.4 of the said Affidavit as under:
ýS4. I respectfully submit that I was not aware about the judgment dated 2.12.2006 passed by this Hon'ble Court in Special Civil Application No.20104 of 2006. Later on, I came to know about this judgment and as per the directions of this Hon'ble Court, the respondent No.2 has fixed the order of priority in accordance with Law. Annexed hereto and marked as Annexure-I is a copy of the circular dated 27.09.2007ýý.
5. In the said Affidavit in paragraph No.1, the following averments were made:
ýS1. I say that in exercise of the statutory powers conferred by Section 110 of the Act, the respondent No.2 had sold plant and machinery, building, stores, stocks, furniture, fixtures, office equipments etc. for a sum of Rs.3.53 Crores. Meanwhile, the Liquidator had received claims from various creditors. After receiving the claims from various creditors of the Mill Company in accordance with the order of priority. I respectfully submit that after receiving this petition, no disbursement has been made to any creditorýý.
6. The Court therefore made an order dated 29.11.2007:
Date : 29/11/2007 ORAL ORDER ýSLearned advocate for respondent No.2 prays for additional time to comply with the order dated 09.10.2007, with special reference to averments made in Paragraph No.1 of the Additional Affidavit dated 24.10.2007. To be listed on 04.12.2007ýý.
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[ D.A. MEHTA, J ]
7. In compliance with the order dated 29.11.2007 further Affidavit dated 4th December, 2007 has been tendered by the Liquidator, Shri Mahendrabhai Chhotabhai Patel, who has taken over as Liquidator on and from 1st December, 2007. Paragraph No.2 of the said Affidavit gives the details of various claims received by the Liquidator. Paragraph No.3 refers to Circular dated 22.05.2006 issued by the Registrar and gives details of the amounts disbursed between 17th February, 2005 to 21st November, 2006. The last sentence of paragraph No.3 states :
ýSIt appears from the record that after receiving this petition, no disbursement has been made to any creditorýý.
Thereafter various averments have been made in paragraph Nos. 5 and 6 in relation to the position of the petitioner in the order of priority fixed as per Circular dated 22.05.2006.
8. However, paragraph Nos. 7 and 8 of the last Affidavit dated 4th December, 2007 read as under:
7. I respectfully submit that after pronouncement of the Judgment by this Hon'ble Court on 2.12.2006, my predecessor-Liquidators has received a communication dated 19.12.2006 from the Registrar, Co-operative Societies, State of Gujarat, Gandhinagar and the same was received by him on 28.02.2007. Annexed hereto and marked as Annexure-III is a copy of the said communication dated 19.12.2006. As per the directions of the Registrar dated 19.12.2006, my predecessor-Liquidator has acted and disbursed the amounts as per the order of priority dated 22.05.2006 after obtaining prior permission of the Registrar of Industrial Co-Operative Societies.
8. It appears from the record that after the decision of this Hon'ble Court dated 02.12.2006, my predecessor-Liquidator, under bonafide belief with prior sanction of the Registrar and as per the directions of the Registrar made the following payments.
Date Amount Paid 19.02.2007 Rs.97,12,795/-
Paid towards Sales Tax.
19.02.2007 Rs.27,23,440/-
Repaid towards remaining installments against long term long given on 20.06.1972 by the State Govt.
05.02.2007 Rs.97,000/-
Paid to Hathisinh Rana (Labour) towards his legal due as per the award passed by the Labour Court.
14.03.2007 Rs.2,68,411/-
Paid to the workers toward their unpaid salaries and other legal dues.
06.06.2007 Rs.7,06,300/-
Paid to the Credit Society of the employees towards unpaid loan of the concerned employees of the Society (in liquidation).
24.04.2007 to 27.04.2007 Rs.93,55,222/-
Paid towards 50% gratuity of the concerned employees of the Mill Company in liquidation.
9. Therefore, it becomes clear that prima-facie the statement made in last sentence of paragraph No.3 that the Liquidator did not make any disbursement after receipt of the petition does not appear to be a correct statement. It is also not correctly stated that the Liquidator became aware of the Judgment of the Court, which was rendered on 2nd December, 2006, only when the petition was received and not prior thereto, because in paragraph No. 7, the Liquidator himself has referred to communication dated 19.12.2006 received from the Registrar referring to the Judgment of the Court whereunder all the earlier Circulars, including Circular dated 22.05.2006, had been quashed and set aside. In fact, the opening portion of paragraph No. 8 of the Affidavit gives a clear indication that even after the decision of the Court dated 02.12.2006 the predecessor-Liquidator, with prior sanction of the Registrar and as per directions of the Registrar made payments between 19th February, 2007 to 27th April, 2007.
10. This fact has to be appreciated in context of communication dated 19th December, 2006 (Annexure-K) wherein the petitioner had categorically invited attention of the Liquidator to the Judgment of the Court and enclosed a copy of the said Judgment as can be seen from the following relevant extract of the said communication:
ýSWe may further invite you kind attention to the decision of the Hon'ble Gujarat High Court as rendered in the orders dated 1.12.2006 and 2.12.2006 in Special Civil Application No.20104 of 2006 and allied matters. Copies of the said orders passed by the Hon'ble Gujarat High Court are enclosed herewith the ready referenceýý.
11. Hence, Shri Amrutbhai Punjabhai Patel, the then Liquidator In-charge has committed, prima-facie, contempt by willfully defying the Judgment of this Court. The learned advocate for the Liquidator has submitted at this stage that he has been orally instructed to state that a copy of the Judgment had not been enclosed along with communication dated 19.12.2006 by the petitioner and therefore, the Liquidator was not aware about Judgment. In the first instance, despite two Affidavits having been filed by the said gentleman, Shri Amrutbhai Punjabhai Patel, at no point of time has it come on record that he had not been made aware of the Judgment of the Court by the petitioner vide communication dated 19.12.2006.
12. Similarly, the statement that the Liquidator become aware of the Judgment of the Court for the first time only on receipt of the petition also stands falsified by the averments made in paragraph Nos. 7 and 8 of the Affidavit dated 4th December, 2007 filed by the Liquidator himself. At least on 28th February, 2007 even as per the say of the Liquidator, the Liquidator had been informed about Judgment of this Court by the Registrar.
13. In so far as respondent No.1-Registrar is concerned from the communication dated 19.12.2006 (Annexure-III annexed to the further affidavit dated 04.12.2007) it is apparent that the said Authority took it upon himself that the Judgment of the Court is not required to be followed till the period for preferring an appeal expires and he has directed all the District Registrars to ask the Liquidators functioning under each District Registrar to make disbursement after consultation with the Registrar. This communication dated 19.12.2006 itself is in gross and willful defiance of Judgment of this Court which was operational on the said day.
14. In the aforesaid facts and circumstances, which have come on record, Notice to the Registrar- respondent No.1 as well as Shri Amrutbhai Punjabhai Patel, the then Liquidator, as to why contempt proceedings should not be initiated against both of them for gross and willful defiance of Judgment of this Court.ýý Thereafter, when the matter came up before this Court on 16.01.2008, the following order was passed:
ýS1. In response to the earlier order passed by this Court dated 11.12.2007, it appears that the Registrar, State of Gujarat, has not submitted the explanation.
Mr.Shukla, learned AGP states that he will get the instructions from the Registrar in this regard. S O to 23.1.2008. Office to supply copy of the order dated 11.12.2007 to Mr.Shukla for communication of the same to the Registrar. It is made clear that if there is no explanation coming on record, Court will be required to pass further appropriate orders in this regard. In the meantime, there shall be no disbursement of amount without express leave of this Court.ýý Thereafter, the liquidator has submitted the explanation and on behalf of the Registrar, Shri A.K. Bhatt, Deputy Registrar(ADM), working in the office of the Registrar, Cooperative Societies has filed the affidavit on behalf of respondent No.1.
It is hardly required to be stated that when earlier this Court vide order dated 11.12.2007, issued notice to the Registrar, respondent No.1 to show cause as to why contempt proceedings should not be initiated against him, it was required for the Registrar himself to file the affidavit submitting the explanation or otherwise. However, Mr. Shukla, learned AGP submitted that the Registrar, Cooperative Societies was not in the State and therefore, his affidavit could not be filed. On the aspects of contempt, the matter shall be considered at the later stage. However, the Registrar, if desirous to file an explanation, shall file the same within two weeks. While submitting the explanation, he shall also state any remedial measure if desirous to undertake to ensure that the decision of this Court dated 01.12.2006 in Special Civil Application No.20104 of 2006 is given full effect and there may not be complaint of defiance to the said decision.
It also appears that even if the earlier decision of this Court is considered, the liquidator had to independently examine the matter to fix-up the priority. The priority fixed up by the liquidator appears to have been solely based on the circular dated 22.05.2006, but it is the case of the liquidator that he has considered the circular and based on the same, the priority is fixed. It appears from the affidavit filed by the Deputy Registrar that the direction issued earlier vide letter dated 19.12.2006 is withdrawn and the liquidator is directed to examine the matter independently. Therefore, while deciding the order of priority in the matter of payment of a society which is in liquidation, whether liquidator can consider(not as binding) the instructions of the Registrar or not may be an aspect to be finalised at the final hearing stage. However, it appears from the details submitted on page 137, which is a part of the affidavit in reply of the liquidator that based on his fixation of priority, the payment is also made by him.
Mr. Thakkar, learned counsel appearing for the petitioner has at this stage principally raised the grievance for making payment to the employees of the mill of Rs.93,55,222/- without considering the claim of the petitioner of the petitioner pari passu, though as secured creditor. As the payment is already made to the workers, direction at this stage cannot be given to recover the amount. However, as there is balance of Rs.34,65,000/-, the same can be considered for disbursement, if ultimately the claim of the petitioner is considered on the basis of pari passu disbursement with the workers' claim.
It prima facie appears that the proceedings of liquidation of a cooperative society may not be fully at par with the proceedings by the Insolvency Court or the winding up proceedings of the company as per the Companies Act, but for the purpose of fixation of priority, normally, such statutory provisions are required to be considered by the liquidator while fixing the priority. It may be for the valid reason, there may be departure therefrom, but in normal circumstances, the order of priority has to be at par with all other winding up or insolvency proceedings and the reason being that the principles of distribution, vis-a-vis the rights of the creditors would generally be the same as there is no express provision made under the Act or under the Rules. It appears that that the liquidator ought to have been guided by the order of priority as to be fixed by the insolvency court as per the Provincial Insolvency Act, 1920, and/or the statutory priority as made under the Companies Act at least, so far as it relates to liquidation of industrial or cooperative societies dealing in industry or manufacturing or processing activities. The reason being that, in such societies, there may be huge liability towards secured creditors, workers claim and also statutory dues.
If such principles are applied, the petitioner may have the claim for pari passu payment with the workers' claim. As the workers are already paid the amount of Rs.93,55,222/- and others, it would be required for the liquidator to undertake exercise of fixing the ratio for payment of pari passu, keeping in view the total workers claim and the debt of the secured creditors which may include the petitioner's claim based on the award of the nominee.
In view of the above, I am inclined to pass the following order:
Rule.
The respondent liquidator shall undertake the exercise of making calculation of the claim of the petitioner and other secured creditors as well as the total workers' claim and also undertake the proportionality of the amount and the ratio thereof for pari passu payment. Such report shall be submitted within three weeks from today. The matter shall be considered for permitting disbursement of the amount thereafter.
The liquidator shall be guided by the priority for payment at par with the insolvency proceedings and the winding up of the companies under the Companies Act and as per Sections 529, 529A read with Section 530 of the Companies Act.
The Registrar, Cooperative Societies shall consider the matter for intimating to all Industrial Cooperative Societies and the Societies undertaking processing, ginning and other manufacturing activities to consider the priorities as provided under the Provincial Insolvency Act, 1920, and above referred Sections 529, 529A and Section 530 of the Companies Act.
The Registrar shall also intimate to such Societies that the aforesaid priority shall have guiding effect and not the binding effect.
Matter to be considered for further orders on 27th February, 2008.
(JAYANT PATEL, J.) *bjoy