Gujarat High Court
Mamta Steels Limited (In Liquidation) vs Regional Manager on 5 February, 2013
Author: Jayant Patel
Bench: Jayant Patel
MAMTA STEELS LIMITED (IN LIQUIDATION)....Appellant(s)V/SREGIONAL MANAGER O/OJA/16/2010 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL NO. 16 of 2010 In COMPANY APPLICATION NO. 499 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE JAYANT PATEL and HONOURABLE MR.JUSTICE MOHINDER PAL ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ 1 - MAMTA STEELS LIMITED (IN LIQUIDATION) Appellant(s) VERSUS 1 - REGIONAL MANAGER 2 - GUHARAT INDUSTRIAL DEVELOPMENTCORPORATION. THRU. M.D. 3 - GUJARAT STATE PETROLUME CORPO.THRU. MANAGING DIRECTOR 4 - OFFICIAL LIQUIDATOR, Opponent(s) ================================================================ Appearance: MR SURESHKUMAR RAVI, ADVOCATE for the Appellant(s) No. 1 MR ASPI M KAPADIA, ADVOCATE for the Opponent(s) No. 3 MR CHINMAY M GANDHI, ADVOCATE for the Opponent(s) No. 2 MR JS YADAV, ADVOCATE for the Opponent(s) No. 4 MR MB GANDHI, ADVOCATE for the Opponent(s) No. 2 OFFICIAL LIQUIDATOR for the Opponent(s) No. 4 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL and HONOURABLE MR.JUSTICE MOHINDER PAL Date : 05/02/2013 ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE JAYANT PATEL) The present appeal is directed against the order passed by the learned Company Judge in Company Application No.499 of 2007, whereby the learned Company Judge has dismissed the application with the observations that the dismissal of the application shall not come in the way of the applicant while arguing Special Civil Application, which was stated as pending.
The short facts, which are relevant for the purpose of the present appeal are as under:-
2.1 There was voluntary winding up of the appellant Company under Section 484(1)(b) of the Companies Act w.e.f. 27.9.2001 and such voluntary winding up was also notified in the Gazette dated 16.3.2002. The Liquidator has been appointed under the Companies Act for the purpose of effecting voluntary winding up. As per the Liquidator of the Company, after the winding up and after notification in the Government Gazette, letter dated 16.12.2002 by hand-delivery, respondents No.1 and 2 were intimated about status of the Company, communicating that the Company has been taken into liquidation and they were called upon to declare their claims, if any. On 17.12.2002, Liquidator had addressed a letter through Registered A.D. Post, acknowledging the claim of Respondent No.1 of Rs.1,03,298. On 26.12.2002, the Liquidator requested respondents No.1 and 2 to appoint their Nominee in the sale committee to dispose of the property of the Company, but such was not responded. As per the appellant, respondent No.1 in the year 2002, took over the possession of the Company s Unit by applying lock on the main gate of the Unit without considering the aspects that there is statutory liability against the Company regarding Excise, Sales Tax etc., of about Rs.28,50,000/- and further liability of about Rs.13,50,000/- towards creditors. Thereafter, on 9.9.2004, the applicant Company was handed over the possession by the respondent GIDC. As per the Appellant, the property of the Company at GIDC was valued through the Government approved valuer at Rs.22,33,000/-. The voluntary Liquidator had further taken action for inviting offer and he had received the highest offer of Rs.42,31,000/- for the property at GIDC claimed by the Company. The Company was also permitted to remove the machinery by GIDC and thereafter as per the appellant, the shed with the land has been transferred by GIDC to respondent No.3 against the consideration of Rs.16,48,600/- vide letter dated 8.6.2007. As per the respondent, agreement to that effect has also been executed on 27.8.2007 and the possession has been handed over on 11.9.2007. Under these circumstances, the appellant preferred Company Application No.499 of 2007 before the learned Company Judge and prayed that the transaction of sale executed by GIDC in favour of GSPC for Rs.16,48,000/- be set aside and the voluntary Liquidator be permitted to accept the offer of Rs.42,31,000/- of the highest bidder by executing sale deed in favour of the highest bidder and it was also prayed that the voluntary Liquidator be permitted to disburse the amount realized therefrom as per the previous Sections 529A and 530 of Companies Act.
It may also be recorded that as per the respondents 1 and 2 Corporation, property in question was a plot bearing No.1512 at Kerala (Bhavla Estate), which was allotted on 17.11.1996. As the Company was unable to pay the instalments as per the licence agreement, there was default. Therefore, proceedings for eviction under Gujarat Public Premises (Eviction of Unauthorised Occupancy) Act (hereinafter referred to as the Act ) were initiated and the order for taking over of the possession was ultimately passed on 7.11.1996 and thereafter the possession was also taken over on 30.3.1998. As per the respondent Nos.1 and 2, upon request made by the Company to restore the possession, the same was restored on 29.7.1998 on condition to pay the amount. Thereafter, when GIDC was to take action for taking over the possession, Civil Suit No.45 of 2001 was filed, which came to be dismissed on 16.12.2002. There was also litigation of Special Civil Application No.13492 of 2007, which was withdrawn with a view to approach before the Corporation. The second petition being Special Civil Application No.14269 of 2007 was also filed by the Company in liquidation, wherein this Court had issued direction to consider the representation of the Company for the change of date of allotment. The said representation was rejected by respondents No.1 and 2.
The learned Company Judge heard the application and he found that there was agreement for licence and the Company could not be said as having vested right in the property and it was further observed that since the property is already sold to the Government concern, GSPC, there was no question of setting aside the said sale, that too, at the behest of the Company in liquidation, which itself was a defaulter and the Company had no say in the sale of the assets of the Company in liquidation. Therefore, ultimately, the learned Company Judge found that no case is made out and dismissed the application, but with the observation that the order shall not come in the way of the Company for pursuing the Special Civil Application, which was pending at the relevant point of time. Under these circumstances, the present appeal before the Division Bench of this Court.
We have heard Mr.Ravi, Voluntary Liqudator of the Appellant Company, Mr.Chinman Gandhi, learned Counsel for respondents No.1 and 2 and Mr.Kapadia, learned Counsel for respondent No.4.
It may be recorded during the course of the hearing, in order to verify the facts, we had called for the original file from GIDC regarding the actual date on which the possession of the property in question has been taken over. As per the additional affidavit dated 21.12.2012 filed on behalf of GIDC, the order for eviction under the Act was once again passed on 7.3.2000, however, the actual, physical possession is stated to have been taken over on 16.12.2002, whereas the winding up proceedings of the appellant Company have commenced on 27.9.2001 and the intimation for winding up of the Company was given to GIDC on 1.10.2001. Therefore, the situation, as emerging from the original file of GIDC, is that after the commencement of the proceedings of voluntary winding up on 26.9.2001 and the intimation having been received by GIDC on 1.10.2001, the possession of the Unit has been taken over under PP Act by GIDC by applying lock. Further, as appearing from the pleadings and rather an admitted position that GIDC thereafter has transferred the property
- the land with shed in question to respondent No.3 on 8.6.2007 against the consideration of Rs.16,48,600/-.
As per the provisions of Section 446 of the Act, all proceedings shall not be commenced and/or are not to be proceeded with against the company, except with the leave of the Court. Section 446(2) provides that notwithstanding anything contained in any other law for the time being in force, the Court will have the jurisdiction to entertain and dispose of any claim made by or against the Company and also any question of priorities or any other question whatsoever whether of law or of fact relates to winding up of the company. Therefore, if Section 446 of the Act was to apply, the action for recovery for taking over of the possession could be said as barred under the law and the proper course was to move the Company Court by GIDC before execution of the order of eviction under PP Act. However, the learned Counsel appearing for respondent No.3 raised the contention that it was not a matter where winding up order has been passed by the Court, but was a case of voluntary winding up. He submitted that in case of voluntary winding up Section 446 of the Act may have no applicability.
Whereas, Mr.Ravi, learned Liquidator submitted that even in case of voluntary winding up provisions of Section 446 of the Act would apply and the bar would start operating from the moment winding up proceedings have commenced.
Therefore, the first aspect, which may be required to be considered is whether in case of voluntary winding up provisions of Section 446 would be applicable or not? As per Chapter 3 of the Act, voluntary winding up may be comprising of two types; one would be if the circumstances under Section 484 are satisfied resulting into voluntary winding up either on account of such provisions made under Articles of the Company and the Company has passed the resolution to that effect and another is when the Company passes the special Resolution for voluntary winding up. As per Section 485 of the Act the publication of the resolution of voluntary winding up is required to be made, which has been actually made in the present case and as per Section 486 of the Act the voluntary winding up would commence at the time when the resolution for voluntary winding up is passed. Therefore, the proceedings under the voluntary winding up have commenced accordingly. Section 487 of the Act provides the effect of voluntary winding up on the status of the Company, inasmuch as on commencement of the proceedings of voluntary winding up, the company shall cease to carry on its business, except as far as required for the financial winding up of such business. Section 489 of the Act provides that the provisions contained in Section 492 and Section 498, both inclusive, shall apply subject to the provisions of voluntary winding up.
At this stage, we may refer to the decision of the Constitutional Bench of the Apex Court in the case of The Neptune Assurance Co. Ltd. Vs. Union of India & Another, reported in (1973) 1 SCC, 310.
In the said decision, the Apex Court had an occasion to examine the question of effect of the words winding up as provided under General Insurance (Emergency Provisions) Act 1971. The majority view (Per: Palekar, Beg and Dwivedi, J.J.) observed, inter alia, that the words wound up form part of two limbs; one being voluntary winding up and another being winding up by a Court . It was observed that it is reasonable to assume that under the Act of Section 15(1) of the General Insurance (Emergency Provisions) Act 1971 both the limbs can be said as are included. It was further observed that the expression winding up of a company and winding up of the affairs of a company conveys the same sense, for the phrase affairs of a company means business affairs of a company . It is true that the aforesaid interpretation of the Apex Court was in case of a accrual of liability and the Apex Court was considering the question as to which type of winding up has been included and keeping in view of the object of the Act, the interpretation was made by the majority view. If the object of Section 446 is considered, the same is essentially a safeguard of the company s assets and also to avoid the possible expenses of the litigation or the dispute/s and to get them disposed of through the Company Court. In the case of winding up by the company or voluntary winding up, all assets of the company are to be made available for distribution to the claimants as per the statute and no creditor can be allowed to march over the legitimate claim of any other creditor.
Further, Section 518 of the Companies Act provides that the Liquidator may apply to the Court for determination of any question arising in the winding up of the company or may move the Court to exercise power for staying of the proceedings or other matter when the Court might exercise power if the company were being wound up by the Court. So by virtue of Section 518(1)(b) there are enabling power with the Liquidator to apply to the Court for exercise of the power as if the company was would up by the Court. Under these circumstances, it is not possible for us to accept the contention of Mr.Kapadia, learned Counsel appearing for Respondent No.3 that Section 446 of the Act would have no applicability whatsoever in a case of voluntary winding up. On the contrary as per the scheme of the Act, it has been provided and more particularly Section 518(1)(b) of the Act, that the Liquidator may move the Court for exercise of power as if the Company was ordered to be wound up by the Court. Of course, that does not mean that in every case, Court may exercise the power, but it is not possible to conceive a situation that when Court is to exercise the power under Section 518(1)(b) of the Act, it shall proceed on the basis that Section 446 has no applicability, but rather the Court should proceed on the basis that the power as available under Section 446 of the Act in a case where the company is ordered to be wound up by the Court could be exercised. It is a different matter, where the Court may in a given case decline to exercise the power for valid reason, but thereby per se it cannot be said that the object of Section 446 or the spirit of Section 446 of the Act has no applicability in a case of voluntary winding up. If the object is to be considered as it is, the fact remains that without leave of the Court, the eviction order has been implemented and the possession has been taken over by GIDC.
The aforesaid would lead us to examine the aspect for further considering the facts and circumstances of the case for passing appropriate order. As observe earlier, the order under PP Act has been passed but the execution was not effected. The execution is made on 16.12.2002 for taking over of the possession, of course, after the commencement of the winding up provided on 27.9.2001. It also appears that the Liquidator in order to restrain GIDC from taking over of the possession, instead of moving the Company Court, had filed Civil Suit No.45 of 2001, which has been dismissed on 16.12.2002.
He had also preferred Special Civil Application No.13492 of 2007 and No.14269 of 2007 before this Court instead of moving the Company Court and under both the proceedings no relief was granted. Therefore, one may say that GIDC on account of dismissal of the suit took over the possession on 16.12.2002 in bona fide in furtherance to the execution of the order under PP Act and thereafter, as no relief was granted in SCA, it also in bona fide proceeded to transfer the property to respondent No.3 against the consideration of Rs.16,48,600/-. It is true that the bar of Section 446, if not expressly, by necessary implication operates against taking over of the possession and so was the bar for the transfer of the property by GIDC to respondent No.3, but in our view, both the actions appeared to be not in mala fide with a view to defeat the interest of the company, but rather in bona fide since the liquidator failed at the litigation against GIDC for getting appropriate relief.
At the same time, it does appear that without making any change in the property GIDC has transferred the property to respondent No.3 on licence basis on the same terms and conditions as was granted to the company against the consideration of Rs.16,48,600/-. Therefore, the amount of Rs.16,48,600/- could be said as having realized by GIDC against the spirit of Section 446 and in any case, without prior permission of the Company Court. Therefore, the amount of Rs.16,48,600/- should be made available to the creditors of the company for appropriation, subject to the deduction of the claim as GIDC may have from the company and the balance should be made available to the company for its appropriation in accordance with law, including for all legitimate creditors and the contributories of the company.
The attempt was made by the learned Counsel for GIDC to contend that the property of GIDC was allotted to the company on licence basis and the licence stood terminated and consequently no interest could be said as having continued by the company in the property and GIDC was well within its right to proceed for realization of the outstanding amount and, therefore, it was submitted that the company has no right to receive any money and the sale is valid in law. This Court (Jayant Patel, J. - one of us) had an occasion to consider the consequence of winding up of the company and the status of the property held by the company in liquidation in GIDC in the case of Gujarat Industrial Development Corporation Vs. O.L., in Company Application No.33 of 2009 decided on 3.8.2009 and by relying upon the decision of the Division Bench of this Court, at paragraph 12, it was summarized as under:-
12.
Under these circumstances, it appears that the following can be summarized:
(1)The rights of the company in liquidation of a property which is allotted by GIDC to the company would continue to remain as that of the lessee after the date of winding up.(2)
All obligations as existed prior to the winding up shall continue to remain as obligations even after the date of winding up until the property remains in occupation of the O.L. and sold to third party.(3)
The rights of the company in liquidation in capacity as the lessee of the property are salable interest which can be realized by sale under the supervision of the Company Court.(4)
Official Liquidator or the Sale Committee or the Company Court may provide for express condition in the sale for liability to be discharged with the lessor prior to the date of winding up by the Official Liquidator and to be borne by the purchaser after the date of the winding up. However, incorporation of such condition in no manner would adversely affect the rights of lessor for recovering the amount as per the lease deed from the property in question and such would be only by way of inter se arrangement between the OL in capacity as the vendor and the purchaser of the property.(5)
It will be for OL to settle the amount to be paid and/or payable by the company in liquidation with the lessor as per the lease agreement and to clear such outstanding dues. If the condition is expressly provided for liability to be discharged by the purchaser for the period after the date of winding up, the purchaser may settle such amount with lessor-GIDC.(6)
It will be required for GIDC to transfer the leasehold rights on the name of the purchaser after the sale has taken place under the supervision of the Company Court and the obligations, as per the lease agreement, are discharged prior to the transaction.(7)
The purchaser of the property leasehold right shall step into the shoes of the original lessee company in liquidation and the rights between the purchaser and GIDC lessor shall continue to remain in operation as per the lease agreement after the date of the purchase.(8)
In the event, there is any dispute on the aspects of settlement of the amount recoverable by GIDC in capacity as the lessor either with the OL or with the purchaser, the matter can be considered by the Company Court for finalization of the amount and upon the payment so made to GIDC lessor, it would not be open to GIDC lessor to decline the transfer in favour of the purchaser.
(9) So far as any other liability of the lessee towards local taxes outstanding of the notified area, it can be termed as individual liability of such company in liquidation who is occupier of the property and such can be equated with the other taxes of the local authorities. As per the decision of the Apex Court in case of Aichampdany Industries Ltd. v. Official Liquidator and Anr. reported in (2009) 4 SCC 486, the amount outstanding towards such taxes would fall in the category of debt under Section 530 and such taxes would not be recoverable as obligations to be discharged by the company in liquidation as lessee with GIDC.
13. In view of the aforesaid, if the facts of the present case are further considered, it cannot be said that the action of the OL for taking over the possession of the property of the company in liquidation was illegal or void nor the possession of the property can be ordered to be handed over to GIDC. However, even if it is observed that GIDC is the owner of the property but the same is in capacity as the lessor and the company in liquidation is in capacity as the The attempt was made by the learned Counsel appearing for GIDC to distinguish the said decision on the ground that it was a case where the Court made observations for leasehold rights, which creates in the property, but in the present case, it was licence agreement and, therefore, the matter might stand on a different footing and different consideration.
At the first brush one may find that the licence would not create any interest in the property, but it was not a matter of giving the property on licence basis simplicitor, but was rather by way of exercise of power under the Regulation framed by GIDC from time to time for allotment of its plot on licence basis to the new entrepreneur for establishment of industry. Until the amount of licence fee was fully paid, the holding was as licencee, but upon the payment of the full amount lease deed was agreed to be executed by GIDC in favour of the licencee. Therefore, it was a licence agreement wherein the right has been given for getting the lease deed executed in favour of the company. The copy of the licence agreement is produced at Annexure-C and various conditions incorporated therein, in our view, clearly goes to show that it was not a matter where the licence was permitted for a limited entry, but was a case where the licence deed came to be executed in exercise of the power under Regulation 8 and the rights were crystallized for making construction over the property and also for right to get the lease deed executed in favour of the company. Therefore, it is not possible for us to take a view that the principles as laid down in the above referred decision of this Court in the case of Gujarat Industrial Corporation (supra) could not be applicable to the present case. There is one additional reason and the same is that even with respondent no.3, same type of agreement of licence is entered into by GIDC and the amount realized of Rs.16,48,600/-. Therefore, even if it is considered that the company was holding a licence, which has been transferred by GIDC to respondent No.3 and the money is realized of RS.16,48,600/-, there is no reason why such amount should not be made available to the company for its appropriation, of course, after deduction of the legitimate claim of the recoverable amount to GIDC.
The aforesaid would lead to examine the aspect as to what amount was validly recoverable by GIDC from the company at the time when the eviction order was passed. The documents are produced with the affidavit-in-reply dated 21.12.2012 by Sharad Parikh, Divisional Manager of GIDC. In the notice dated 15.10.1999 for eviction under PP Act the amount quantified is of Rs.7,51,289/-. Whereas in the panchnama, the amount mentioned is of Rs.17,61,383/-. No material is produced to show as to how the amount of Rs.7,51,289/- is stated in the notice under PP Act was shown resulted into Rs.17,61,383/- as mentioned in the panchnama. Therefore, we find that the appropriate reliance deserves to be made upon the amount mentioned in the notice under PP Act dated 15.10.1999, which is in exercise of the statutory power, wherein the amount unpaid is shown of Rs.7,51,289/-. As stated in the licence agreement at Annexure-C, the interest is mentioned at 19% per annum with the additional penal interest at the rate of 3% above the normal rate of interest on the amount of interest. Therefore, in our view, GIDC should be entitled to the amount of Rs.7,51,289/- on 15.10.1999 and thereafter, the interest for the period from 16.10.1999 till 16.12.2002 i.e. date on which the possession is taken over at the rate of 19% per annum on simple rate plus 3% per annum on the unpaid amount of interest. Accordingly the said amount could be considered as the liability of the company towards GIDC and the balance amount out of the amount of Rs.16,48,600/- will be required to be paid by GIDC to the Liquidator of the company.
In view of the peculiar facts and circumstances as referred to herein above that of the company through liquidator having lost in the civil suit proceedings before the Civil Court and in the SCA before this Court and the respondent No.3 having acted bona fide in getting the property by paying consideration of Rs.16,48,600/- and after getting property, having made huge investment, we do not find that it would be just and proper to direct the respondent No.3 as well as GIDC to return the property so as to make it available to the liquidator of the company for realization of its assets. Considering the facts and circumstances, we find that the matter at the most can be considered for return of the amount by way of benefit derived by GIDC therefrom the transaction of disposal of the property on licence basis to respondent No.3 and, therefore, the corpus of the company would not suffer. In our view, the equitable principles would also demand that the reliefs be modulated only to that extent. However, GIDC should pay reasonable interest on compensatory basis to company at the rate of 8% p.a., on the aforesaid net amount payable to the Company, since GIDC has enjoyed the money from 16.12.2002 till today.
Hence, it is ordered that the respondent No.3 as well as respondent No.2 shall return the amount net amount of Rs.16,48,600/- (Rs.16,48,600/- minus the amount of Rs.7,51,289/- plus the aforesaid interest for the respective periods) with interest at the rate of 8% p.a., from 16.12.2002 till payment within a period of two months from the date of receipt of the order of this Court to the liquidator of the company in liquidation. It is also observed that if there is failure on the part of GIDC and/or respondent No.3 to pay the amount to the liquidator of the company in liquidation (applicant herein), the action of taking over of the possession and of transferring the property to respondent No.3 shall stand as illegal and consequently the liquidator of the company would be entitled to get back the possession of the property so as to make it available for appropriate distribution in accordance with law. The judgement and order of the learned Single Judge is set aside. The appeal is allowed to the aforesaid extent. Considering the facts and circumstances, the respondent GIDC shall pay the cost of Rs.5,000/- to the Liquidator of the company within a period of two months from the date of receipt of the order of this Court.
(JAYANT PATEL, J.) (MOHINDER PAL, J.) vinod Page 25 of 25