Bombay High Court
Maharashtra Industrial Development ... vs Mahendra G. Wadhwani on 23 November, 1995
JUDGMENT D.R. Dhanuka, J.
1. Respondent No. 1 is the owner of eight plots of land bearing Nos. A-63 to A-67 and C-23 to C-25 situated in the Dombivili Industrial Area of respondent No. 1 admeasuring about 32760 sq. metrs. On August 13, 1973, respondent No. 1 executed a lease in respect of the said eight plots of land in favour of Eldee Wire Ropes Limited (now in liquidation) for a period of 95-years commencing from May 1, 1965. The said lease is subsisting for its unexpired period. Eldee Wire Ropes Limited is hereinafter referred to as "the company". With the consent of the Maharashtra Industrial Development Corporation, the said company created a mortgage on the said eight plots of land, etc., in favour of the State Bank of Hyderabad in lieu of the said bank providing credit facilities to the said company. Very large amounts were due and payable by the company to the State Bank of Hyderabad.
2. By an order dated July 12, 1978, passed in Company Petition No. 525 of 1977, the said company was directed to be wound up and the official liquidator attached to the High Court was appointed as official liquidator of the said company.
3. Gannon Dunkerley and Co. Ltd. is applicant No. 1 in Company Application No. 261 of 1995. By letter dated March 16, 1984, addressed to the State Bank of Hyderabad, the applicant offered to purchase all the assets of the company in liquidation for a sum of Rs. 65,00,000 along with the leasehold interest of the company under liquidation in the said eight plots. The State Bank of Hyderabad approached respondent No. 1 for its consent for sale and transfer of the eight leasehold plots of land referred to hereinabove. On October 31, 1984, respondent No. 1 passed an order which is directly relevant for the purpose of deciding this application. A copy of the said order is annexed as exhibit "C" to the affidavit of Shri Masur Kuppuswami Nilakant Kaushik dated May 10, 1995. The said order makes reference to the above-referred eight plots of land bearing Nos. A-63 to A-67 and C-23 to C-25 situated in the Dombivili area of respondent No. 1. The said order describes applicant No. 1 as the proposed transferee of the said plaintiffs. The said order makes reference to various letters addressed by the State Bank of Hyderabad to respondent No. 1 for consent of respondent No. 1 in respect of transfer of the said eight plots of land. By the said order, respondent No. 1 granted its consent for transfer and assignment of the interest of the company under liquidation in the said plots of land as a lessee under the said lease, i.e., lease dated August 13, 1973. It is stated in the said order dated October 31, 1984, passed by respondent No. 1 that the MIDC was pleased to grant its consent for transfer of the lessee's interest in the above-referred plots without charging any amount of additional premium.
4. The said order dated October 31, 1984, refers to the name of the proposed transferee in respect of the lessee's interest in the said plots of land as under :
"Transferee : Gannon Dunkerley and Co. Ltd."
Clause 3 of the said order dated October 31, 1984, reads as under :
"This consent is restricted to the transfer and assignment of the said lease in favour of the transferee alone and in case the transferee proposes to make any further transfer or assignment of parting wholly or partially with the possession of the plot of land demised under the said lease or any part thereof the transferee will have to make a fresh application for consent".
5. This is not a case of "further transfer" by applicant No. 1 in favour of applicant No. 2. The leasehold interest of the company under liquidation in the above-referred eight plots of land is still not transferred in favour of any one so far. This is a case of first transfer by the official liquidator in favour of applicant No. 2 as a nominee of applicant No. 1 in pursuance of the order of the court.
6. On December 11, 1984, the State Bank of Hyderabad made Company Application No. 386 of 1984, in this court for a direction to the official liquidator to accept the offer of applicant No. 1 herein for purchase of all the assets of the company under liquidation on the terms and conditions contained in letter dated March 16, 1984, addressed by applicant No. 1 to the State Bank of Hyderabad and as confirmed by letter dated June 15, 1984, addressed by the State Bank of Hyderabad to applicant No. 1. The offer made by applicant No. 1 was a composite offer for purchase of all the assets of the company including the leasehold rights of the company under liquidation in the said eight plots of land. The official liquidator obtained the valuation report. By order dated January 30, 1985, Bharucha J. as His Lordship then was (now the Justice of the Supreme Court of India) passed an order making the judge's summons, i.e., Company Application No. 368 of 1984, absolute in terms of prayer (a) thereof. While passing the said order the learned judge observed in the said order that having regard to the valuation report it appeared to him that the judge's summons should be made absolute in terms of prayer (a). Thus, the transaction for transfer of leasehold rights in the said eight plots of land along with other assets of the company under liquidation was sanctioned by this court as a company court and the official liquidator was directed to accept the offer made by applicant No. 1. This is not a case of private transaction between the State Bank of Hyderabad and applicant No. 1 without intervention of the company court. This is a case of transfer of assets belonging to the company under liquidation during the course of winding up with the sanction of the court. The transfer sanctioned by the court, inter alia, in respect of the eight leasehold plots of land must be properly lawfully and finally effectuated with the aid and assistance of this court.
7. On May 3, 1985, Parekh J. passed an order in Company Application No. 107 of 1985, made by applicant No. 1 herein in terms of the minutes of the order after hearing the official liquidator and learned counsel for the State Bank of Hyderabad fixing the instalments by which the above-referred sum of Rs. 65 lakhs was thus made payable by applicant No. 1 by instalments as set out in the said order. By clause 5 of the said order it was provided that the official liquidator shall release the payments of the amounts which may be received from applicant No. 1 to the State Bank of Hyderabad subject to payment of just and legal charges and expenses of the official liquidator. Thus, it is clear that the State Bank of Hyderabad did not receive any amounts directly from applicant No. 1 but received the agreed amounts as a secured creditor, from the official liquidator as provided in the order passed by Parekh J. on May 3, 1985, referred to hereinabove. The State Bank of Hyderabad acted as a secured creditor in the course of winding up as aforesaid.
8. On August 11, 1989, Variava J. passed an order in Company Application No. 302 of 1987, directing payment of the balance of the purchase price of Rs. 48,75,000 together with interest in instalments as set out therein.
9. On June 17, 1993, applicant No. 1 took out a judge's summons numbered as Company Application No. 398 of 1993, in this court for a direction to the effect that the official liquidator do grant sale, convey, transfer and assign all the assets, land, building, plant and machinery of the company under liquidation, etc., in favour of applicant No. 1 or its nominee or nominees. The said judge's summons was addressed to the official liquidator as well as to the State Bank of Hyderabad. It was stated in para 5 of the affidavit in support of the judge's summons that applicant No. 1, i.e., Gannon Dunkerley and Co. Ltd. had already paid instalments up to and inclusive of the September 15, 1992, instalment payable under consent order dated August 11, 1989, leaving only the last instalment to be paid along with interest. By order dated July 22, 1993, this court made the said judge's summons absolute in terms of prayer (a) of the judge's summons and the official liquidator was thus directed to convey and transfer of the assets of the company under liquidation in favour of applicant No. 1 or its nominee or nominees. The State Bank of Hyderabad was claiming certain additional amounts from applicant No. 1 in lieu of interest, etc., It is recorded in the said order that applicant No. 1 had handed over a cheque for Rs. 11,27,000 to learned counsel for the State Bank of Hyderabad in court on account of interest payable. Thus, all the disputes regarding payment of consideration amount to the official liquidator in pursuance of the order passed by this court as aforesaid came to an end.
10. On December 8, 1993, applicant No. 2-company, i.e., Wintri Engineering and Chemicals Pvt. Ltd., was incorporated as a company under the Companies Act 1 of 1956. It is the case of the applicant and it is believable that applicant No. 2 is the subsidiary company of applicant No. 1 with effect from December 9, 1993. The applicants have annexed the certificate of incorporation in respect of applicant No. 2 being certificate of incorporation dated December 8, 1993, issued by the Additional Registrar of Companies bearing No. 11-75503 of 1993, as exhibit "A" to the affidavit in rejoinder. The applicants have also annexed a certificate issued by G. P. Agarwal and Co., chartered accountants, being certificate dated April 8, 1994, to the effect that applicant No. 2 had become a subsidiary of applicant No. 1 in terms of section 4, sub-section (1), clause (a), of the Companies Act, 1956, from December 9, 1993, i.e., right from inception. It appears that applicant No. 2 continues to be a subsidiary of applicant No. 1. Section 4(1) of the Companies Act 1 of 1956, inter alia, provides that for purpose of the Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary is another controls the composition of its board of directors.
11. It also appears from the annual report published by applicant No. 1 for the year 1994-95 that applicant No. 2 is a subsidiary of applicant No. 1 with effect from December 9, 1993, by virtue of the control of the composition of the board of directors of applicant No. 2 company.
12. It is the case of applicant No. 1 that applicant No. 1 is entitled to nominate applicant No. 2 for obtaining the transfer of the leasehold rights in the above-referred eight plots and other assets of the company under liquidation and applicant No. 2 is a subsidiary company of applicant No. 1. These averments are not controverted by or on behalf of respondent No. 1.
13. Applicant No. 1 has already paid the entire consideration amount payable by applicant No. 1 towards the purchase price and the amount of interest for obtaining the transfer of the assets of the company under liquidation including the transfer of leasehold rights in the eight plots referred to in the earlier part of the order.
14. By letter dated December 10, 1993, applicant No. 1 approached respondent No. 1 for its consent to transfer the leasehold rights in respect of the said eight plots in favour of applicant No. 2 as nominee of applicant No. 1. Applicant No. 1 pursued the said request by its advocates' letter dated January 25, 1994. Respondent No. 1 declined to give its consent for transfer of the leasehold rights in the said eight plots of land and/or transfer such leasehold rights in favour of applicant No. 2 unless the differential amount of premium computed at Rs. 65 lakhs was paid by applicant No. 1.
15. By judge's summons herein, i.e., Company Application No. 261 of 1995, the applicants have sought a direction from this court as company court to respondents Nos. 1 to 3 not to press for payment of premium in a sum of Rs. 65 lakhs (rupees sixty-five lakhs) and set aside the demand made by respondent No. 1, for payment of such premium by its letter dated January 6, 1995, copy whereof is exhibit "A" to the affidavit in support of the judge's summons. By this judge's summons the applicants have also sought a direction from this court to respondents Nos. 1 to 3 to transfer the leasehold rights in respects of the eight plots of land referred to hereinabove in favour of applicant No. 2.
16. Learned counsel for respondent No. 1 has raised several contentions at the Bar while opposing the application herein.
17. The first question which arises for consideration of the court is as to whether this court has jurisdiction to entertain the application made by the applicants herein, i.e., Company Application No. 261 of 1995.
18. Shri R. M. Bardey, an officer of respondent No. 1, has filed his affidavit dated November 17, 1995, and has formulated the above-referred objection as set out in para 2 of the said affidavit. It is contended that the application herein does not come within the ambit of section 446 of the Act, which has no application at all to this proceeding. It is contended that the State Bank of Hyderabad being a secured creditor was outside the winding up proceedings and respondent No. 1 as a third party is unconcerned with the winding up proceedings herein.
19. In my opinion, there is no merit in this contention. Section 446 of the Companies Act 1 of 1956 is totally irrelevant for the purpose of deciding/considering the application herein. Section 446 of the Companies Act 1 of 1956, deals with the subject-matter of stay of suits or proceedings on winding-up order being passed or a provisional liquidator being appointed. No question of stay is involved in this proceedings. The said section is thus totally irrelevant for our purpose.
20. Section 457(1)(c) of the Companies Act 1 of 1956, provides that the liquidator in a winding-up by the court shall have power, with the sanction of the court, to sell the movable and immovable property and actionable claims of the company by public auction or private contract as more particularly set out therein. The assets directed to be sold and transferred by the official liquidator, inter alia, comprise leasehold rights of the company under liquidation as lessees in respect of the above-referred eight plots for the unexpired period of lease. The company court has the jurisdiction and the powers to issue all necessary, ancillary and incidental directions so as to effectuate the main power contained in section 457(1)(c) of the Companies Act 1 of 1956, read with other enabling provisions of the Act. The company court has jurisdiction to issue necessary directions to one and all in respect of matters interlinked with the disposal of the property of the company under liquidation by the official liquidator with the sanction of the court. Perhaps Shri R. M. Bardey was not at all conscious of the order passed by Bharucha J. on Application No. 386 of 1984, sanctioning sale of the assets of the company under liquidation by the official liquidator in favour of applicant No. 1. This is a case of sale by the official liquidator in respect of the assets of the company under liquidation. The said order is liable to be read along with subsequent orders of the court, summarised in the earlier part of this order.
21. Learned counsel for respondent No. 1 has interpreted the order dated October 31, 1984, passed by the MIDC, a copy whereof is exhibit "C" to the affidavit in support of the judge's summons so as to convey that the said order does not exempt the applicants herein from payment of the amount of differential premium. In this respect, the questions required to be considered by the courts may be formulated as under :
(a) Whether it is a case transfer of leasehold plots by applicant No. 1 in favour of applicant No. 2 ?
(b) Whether it is a case of first transfer or whether it is a case of second transfer ?
22. Clause 3 of the order dated October 31, 1984, clearly provides that if Gannon Dunkerley and Co. Pvt. Ltd. decides to make further transfer of the leasehold rights in the said plot of land in favour of any other party, the second transferee will have to make a fresh application to respondent No. 1 for its consent. Applicant No. 1 is not effecting transfer of assets herein in favour of applicant No. 2. No transfer of leasehold rights is still effected in favour of applicant No. 1. In the earlier proceedings, applicant No. 1 sought a direction from this court to the official liquidator to execute the deed of transfer in favour of the nominee of applicant No. 1, i.e., applicant No. 2. The official liquidator is required to execute the deed of transfer in respect of the assets of the company under liquidation in favour of applicant No. 2 as a nominee of applicant No. 1. This deed of transfer/deed of assignment when executed would be the first deed. Thus the later part of clause 3 of order dated October 31, 1984, has no application at all. This is not a case where applicant No. 1 is seeking to make further transfer of its leasehold rights in the above referred eight plots of land in favour of applicant No. 2. In my opinion, the submission made by learned counsel for respondent No. 1 suffers from misconception and fallacy and with respect is not correct. The submissions made by respondent No. 1 as aforesaid are not acceptable to the court. The official liquidator is bound by the order of this court passed on July 22, 1993, passed on Application No. 398 of 1993. If the official liquidator executes the deed of transfer in favour of applicant No. 2 as a nominee of applicant No. 1 in pursuance of the order to the court, execution of such deed of transfer or assignment cannot be equated to the transfer of leasehold rights in the said plot of land by applicant No. 1 in favour of applicant No. 2. The lease executed by respondent No. 1 in favour of the company under liquidation is not yet transferred in favour of applicant No. 1. No document of transfer is executed in favour of applicant No. 1. Respondent No. 1 has agreed not to charge any amount of premium for effecting of transfer of leasehold rights in the above referred plots of land in favour of Gannon Dunkerley and Co. Ltd. The decision made by respondent No. 1 contained in its order dated October 31, 1984, is binding on respondent No. 1. In my opinion, it matters not that the transfer of lease is now required to be recognised by respondent No. 1 in favour of applicant No. 2 as a nominee of applicant No. 1 after the deed of assignment is executed by the official liquidator in favour of applicant No. 2 as a nominee of applicant No. 1 as aforesaid. Respondent No. 1 is bound to do so without charging any premium in lieu thereof.
23. Learned counsel for respondent No. 1 has submitted that applicant No. 2 was got incorporated by applicant No. 1 as a separate company only with a view to evade payment of the transfer fee payable in respect thereof to respondent No. 1. I have no hesitation in rejecting this submission as well. The onus of proving the alleged circumvention or alleged fraud on the part of applicant No. 1 in getting applicant No. 2 incorporated as its subsidiary is on respondent No. 1. Respondent No. 1 has failed to discharge the said onus. In my opinion it is in the interest of justice that reasonable conditions be imposed on the applicants before effective relief is granted as prayed for.
24. Learned counsel for respondent No. 1 has submitted that respondent No. 1 is not bound by the order of this court passed on July 22, 1993, inasmuch as the said order was passed behind his back. By the said order the official liquidator is directed to execute the deed of transfer including in respect of the leasehold plots in favour of applicant No. 1 or their nominee or nominees. The said order does not affect the right of respondent No. 1 to claim the amount of premium if any amount of premium is recoverable by respondent No. 1 in law before effecting the transfer of leasehold right of the company under liquidation in favour of applicant No. 2.
25. Both learned counsel invited the attention of the court to the transfer guidelines published by respondent No. 1 on January 28, 1994, by its Circular No. MIDC/DCM/TRN/G-11/648.
26. The said transfer guidelines clearly provide that in cases of formal transfer as set out therein no differential amount of premium shall be payable but the standard transfer fee alone shall be payable at the rate fixed by the corporation. The principle of these guidelines may be applied even where the said guidelines are not applicable on literal interpretation thereof. The court is informed by learned counsel on both sides as well as by the official liquidator that respondent No. 1 charges a transfer fee at the rate of Rs. 10 per square metre. It is obvious from guideline No. 2(c)(v) of the said guidelines that even the transfer of leasehold rights in the plots leased by MIDC by a holding company in favour of its subsidiary or vice versa is liable to be considered as a formal transfer within the meaning of the said transfer guidelines. It is stipulated by the said guidelines that the relationship of holding company and subsidiary company should continue to subsist between the transferor company and the transferee company for at least a minimum period of two years from the date of grant of permission for transfer. This is not a case of transfer of leasehold rights by the holding company in favour of the subsidiary company. Even if these guidelines are to be applied by analogy in this case, it would follow that the applicant may be liable to pay the standard transfer fee at the rate fixed by the corporation and the relationship between the holding company and the subsidiary company as it exists on the date of grant of permission for transfer must continue at least for a period of two years. To cut the matter short, the applicants are ready and willing to abide by such conditions as the court imposes on the applicants keeping the principle of the said guidelines in mind. The applicants have adopted a reasonable attitude in the matter.
27. After taking an overall view of the matter, I pass the following order :
(i) The official liquidator is directed to execute the required transfer deed (or deed of assignment) in favour of applicant No. 2 within four weeks from the date of receipt of an ordinary copy of the order passed by this court today duly authenticated by the company Registrar. The applicants shall submit the draft of the necessary document of transfer to the official liquidator within two weeks from today;
(ii) The applicants shall pay the "standard transfer fee" (not the amount of any premium) to respondent No. 1 at the rate of Rs. 10 per square metre, i.e., Rs. 3,27,600 by bank draft or banker's cheque along with the applicant for transfer of lease of the unexpired period of the lease executed in favour of the company under liquidation on August 13, 1973. Respondent No. 1 shall thereafter execute a document of transfer of lease in favour of applicant No. 2 for the unexpired period of the lease and get the same duly registered. Respondent No. 1 shall be so within four weeks of the receipt of the application for such transfer. The application for such transfer should be signed by both the applicants and should be accompanied by a letter from the official liquidator to the effect that all the conditions imposed by the court on the applicants are duly complied with. The application for transfer of leasehold rights in the said eight plots of land should also be accompanied by a true copy of the deed of transfer (deed of assignment) to be executed by the official liquidator as directed above.
(iii) Applicants Nos. 1 and 2 shall file a written undertaking in this court duly supported by board resolutions of both the companies to the effect that the relationship of holding company and subsidiary company between applicant No. 1 and applicant No. 2 shall not be altered in any manner whatsoever for a period of two years from the date of execution of transfer of lease in favour of applicant No. 2. The undertaking shall be filed expeditiously.
(iv) Applicant No. 1 shall furnish written guarantee in favour of the respondent No. 1 co-ordinating the performance of application of lessee by applicant No. 2. A written of guarantee in terms aforesaid shall be forwarded along with the application for transfer. It is hereby clarified that the said guarantee is not intended to be a guarantee for the entire period of the unexpired lease. The said guarantee shall remain operative only for a period of two years from the date of transfer of the lease by respondent No. 1 in favour of applicant No. 2 in respect of the said eight plots of land referred to hereinabove.
28. Learned counsel for the applicants makes a statement at the Bar after taking instruction that further shares of applicant No. 2-company are intended to be issued shortly, so as to bring the paid-up capital of applicant No. 2-company nearer to the authorised capital of the said company. This statement is made by the applicants to prove their bona fides and to dispel the suspicion of respondent No. 1 that applicant No. 2 is likely to continue as a company with a small paid-up capital.
29. It is hereby clarified that all the costs, charges and expenses in respect of execution of the transfer deed (deed of assignment) as well as transfer of lease by respondent No. 1 in favour of applicant No. 2 including in respect of stamp duty, registration charges, if any shall be borne by applicant No. 2. Applicant No. 1 gives a solemn assurance to this court as the holding company of applicant No. 2 that all the obligations of applicant No. 2 shall be fulfilled within the time stipulated by the court.
30. Having regard to the facts and circumstances of the case there shall be no order as to costs.
31. The official liquidator shall act on the basis of an ordinary copy of this order duly authenticated by the associate of this court.
32. Issue of certified copy is expedited.