Madras High Court
Chennai Petroleum Corporation Limited vs Asset Reconstruction Company (India) ... on 12 September, 2013
Author: Chitra Venkataraman
Bench: V.Ramasubramanian, Chitra Venkataraman
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 12-09-2013
CORAM:
THE HONOURABLE MR. JUSTICE V.RAMASUBRAMANIAN
Company Application Nos.163 to 165 of 2011
Chennai Petroleum Corporation Limited,
(formerly known as Madras Refineries Limited),
536, Anna Salai,
Teynampet,
Chennai-600 018. .. Applicant in all the applications
vs.
1.Asset Reconstruction Company (India) Ltd.,
('ARCIL'), Shreepati Arcade,
August Kranti Marg,
Nana Chowk,
Mumbai-400 036.
2.SPIC Petro Chemicals Limited,
a company in liquidation,
Represented by the Official Liquidator,
High Court, Madras,
'Corporate Bhavan', 2nd floor,
No.29, Rajaji Salai,
Chennai-600 001.
3.Principal Secretary to the Government,
Industries Department,
Government of Tamil Nadu,
Fort St. George,
Chennai-600 009. .. Respondents in all the applications
C.A.No.163 of 2011 is filed to recall and set aside the order dated 20.12.2010 passed in C.A.No.1114 of 2010, the application in C.A.No.164 of 2011 is to recall and set aside an another order passed on the same date in C.A.No.1115 of 2010. The prayer in C.A.No.165 of 2011 is to grant an interim order of injunction till the disposal of the other two applications.
For Applicant in all the Applications : Mr.R.Senthilkumar
For R-1 in all the Applications : Mr.N.R.Chandran,
Senior Counsel for
M/s.Surana & Surana.
For Government of Tamil Nadu : Mr.S.Gomathinayagam,
Additional Advocate General.
Official Liquidator : Mr.Arvind Shukla
C O M M O N O R D E R
While the application in C.A.No.163 of 2011 is to recall and set aside the order dated 20.12.2010 passed in C.A.No.1114 of 2010, the application in C.A.No.164 of 2011 is to recall and set aside an another order passed on the same date in C.A.No.1115 of 2010. The prayer in C.A.No.165 of 2011 is to grant an interim order of injunction till the disposal of the other two applications.
2. I have heard Mr.R.Senthilkumar, learned counsel for the applicant in these applications, Mr.N.R.Chandran, learned Senior Counsel appearing for the first respondent herein, which is the Asset Reconstruction Company (India) Limited, Mr.S.Gomathinayagam, learned Additional Advocate General appearing for the Government of Tamil Nadu and Mr.Arvind Shukla, learned Official Liquidator.
3. The case on hand has a chequered history. Since the scope of the disputes raised in these applications cannot be understood, without knowing fully the factual setting, it is necessary to extract the matrix as follows:-
(a) In pursuance of a letter of intent issued by the Government of India, agreeing to issue an Industrial License for the manufacture of O-XYLENE, BENZENE and PURIFIED TERAPHTHALIC ACID (PTA), the Madras Refineries Limited, whose name later got changed as Chennai Petroleum Corporation Ltd., (the applicant herein) entered into a Memorandum of Understanding on 17.1.1985 with the Southern Petrochemical Industries Corporation Ltd., for floating a Public Limited Company, as a Joint Venture, to implement the project for which of the Government of India agreed to grant license. The name of the Joint Venture Company, to be formed by the applicant herein and Southern Petrochemical Industries Corporation Ltd., was National Aromatics and Petrochemicals Corporation Ltd.
(b) By an order dated 16.9.1989, the Government of Tamil Nadu accorded administrative sanction for the acquisition of 1655.92 acres of patta and poramboke lands in various villages, for the purpose of allotment to the Joint Venture Project. The Joint Venture project was referred to as AROCHEM.
(c) Unfortunately, the project was getting delayed due to various reasons about which we are not in no way concerned. Therefore, it appears that Southern Petrochemical Industries Corporation, floated a Company by name SPIC Petrochemicals Limited and requested the Government to allot 168.35 acres of land to them. The Government of Tamil Nadu conceded this request subject to the condition that the newly formed Company, SPIC Petrochemicals Limited remits all costs of acquisition and also on condition that after the Joint Ventre Project got implemented, the Unit started by SPIC Petrochemicals Limited would get integrated backwardly with the new Joint Venture Company.
(d) An Agreement was entered into between SPIC Petrochemicals Limited and the Government of Tamil Nadu on 27.6.1994 for the allotment of the said 168.35 acres.
(e) Upon coming to know of the fact that SPIC floated a new Company by name SPIC Petrochemicals Limited and also sought the allotment of plant, the Madras Refineries Limited (the applicant herein) filed a civil suit in C.S.No.67 of 1996 on the file of this Court, seeking a declaration that the project sought to be implemented through SPIC Petrochemicals Limited was in breach of trust and also in violation of the MOU dated 17.1.1989.
(f) Pending suit, Madras Refineries Ltd., (the applicant herein) sought an interim injunction in O.A.No.77 of 1996, to restrain SPIC from implementing the project through SPIC Petrochemicals Limited. They also sought another injunction in O.A.No.78 of 1996, restraining the SPIC from implementing the AROCHEM project.
(g) The applicant also filed a second suit in C.S.No.73 of 1996 to declare that the promoters of the Company as well as SPIC committed a breach of trust by getting 168.35 acres of land transferred to SPIC Petrochemicals Limited. Even in this second suit, the applicant prayed for two different types of interim orders of injunction in O.A.Nos.86 and 87 of 1996.
(h) All the applications for injunction in both the suits, were disposed of by a learned Judge of this Court, by an order dated 2.7.1996, restraining the defendants from proceeding with the project under the newly floated Company, SPIC Petrochemicals Limited. But certain conditions were also imposed.
(i) Aggrieved by one portion of the order, the applicant herein filed a set of 4 Intra Court Appeals in OSA Nos.171 to 174 of 1996. Similarly, SPIC as well as SPIC Petrochemicals Limited filed a set of 4 appeals in OSA Nos.190 to 193 of 1996, challenging the grant of injunction.
(j) By a common order dated 18.3.1997, all the appeals were allowed and the conditions imposed by the learned Judge were set aside. However, interim orders of injunction were granted only in 3 applications. The prayer for interim mandatory injunction made in O.A.No.87of 1996 was rejected. The Division Bench also referred the matter to CBCID for an investigation.
(k) As against the orders of the Division Bench, SPIC and SPIC Petrochemicals Limited filed Special Leave Petitions in SLP (Civil) Nos.13495 to 13500 of 1997. But all these Special Leave Petitions were dismissed by an order dated 24.10.1997.
(l) Immediately before and after the institution of the civil proceedings in C.S.No.67 and 73 of 1996, SPIC Petrochemicals Limited availed credit facilities from ICICI Bank Limited and offered the land of the extent of 168.35 acres as security for the repayment of the loan. The Memorandum of Deposit of Title Deeds was executed on 22.7.1996, after the grant of interim orders on 2.7.1996 by the learned single Judge.
(m) Subsequently, SPIC Petrochemicals Limited appears to have run into debts and a Company by name ION Exchange (India) Ltd., filed a petition in C.P.No.265 of 2002 for the winding up of the SPIC Petrochemicals Limited. Several other creditors had also filed similar petitions for winding up against the same company. In all those petitions, a common order was passed by Chitra Venkataraman, J., on 17.4.2009, directing the winding up of the said company. However, the said order for winding up appears to have been stayed by the Division Bench on 5.5.2009, subject to certain conditions. But subsequently the stay order was vacated in 26.4.2010 and the winding up order has come back to force.
(n) Therefore, when SPIC Petrochemicals Limited committed default in repayment, ICICI Bank filed an application in O.A.No.9 of 2003 before the Debts Recovery Tribunal, Mumbai. In the said application, the Debts Recovery Tribunal appointed a Receiver by an order dated 14.2.2003, to sell the property.
(o) As against the said order, SPIC Petrochemicals Limited filed an appeal in M.A.No75 of 2002 and SPIC itself preferred an independent appeal in M.A.No.79 of 2003. But the Debts Appellate Tribunal, Mumbai dismissed both the appeals by an order dated 10.3.2003.
(p) Challenging the order of the Appellate Tribunal, SPIC as well as SPIC Petrochemicals Limited filed W.P.Nos.1078 and 1079 of 2003 on the file of the High Court of Bombay. While ordering notice in those writ petitions, the High Court of Bombay granted an interim injunction, restraining the respondents from dispossessing SPIC Petrochemicals Limited. The interim order was granted on 17.4.2003.
(q) The applicant herein also filed an appeal in M.A.No.109 of 2003, but the same was dismissed on 17.6.2003. As against the said order, the applicant filed an independent writ petition in W.P.No.2183 of 2003 and the said writ petition is pending as on date.
(r) On 17.4.2009, this Court ordered the publication of advertisements of the various company petitions for winding up against SPIC Petrochemicals Limited. As against the said order, the company-in-liquidation filed appeals in OSA Nos.127 to 132 of 2009. While ordering notice in those appeals, the Division Bench granted stay of the order, directing publication of advertisements. But the stay was subject to a condition that the company-in-liquidation deposited some amount of money.
(s) But the company-in-liquidation could not make a deposit of the amount as ordered by the Division Bench. Hence the Division Bench vacated the interim order on 26.4.2010 and directed the Official Liquidator to take possession of the assets of the company-in-liquidation.
(t) But, in the meantime, the Asset Reconstruction Company (India) Limited, hereinafter referred to as "ARCIL", which got the debts of the company-in-liquidation, assigned in their favour, took possession of the land of the extent of 168.35 acres in terms of Section 13(4) of the SARFAESI Act, on 13.5.2010.
(u) But the Official Liquidator later took possession of the property on 14.5.2010, in pursuance of the orders of the Division Bench in OSA Nos.127 to 132 of 2009, dated 26.4.2010.
(v) Thereafter, ARCIL filed two applications in C.A.Nos.1114 and 1115 of 2010, praying inter alia (i) for upholding its actions as a rightful exercise of its entitlements under the Act; and (ii) for handing over possession of the property to them.
(w) On 20.12.2010, an order was passed in both the applications C.A.Nos.1114 and 1115 of 2010, on the basis of the submissions made by the Deputy Official Liquidator, to hand over possession to the applicant subject to the condition that the applicant would associate the Official Liquidator in the sale of the property and also agree to the payment of amounts under Section 529-A of the Act.
(x) Upon coming to know of the said order passed on 20.12.2010, the applicant has come up with the above applications C.A.Nos.163 to 165 of 2011, praying inter alia (i) to recall and set aside the order dated 20.12.2010 in C.A.No.1114 of 2010; (ii) to recall and set aside the order passed on the same date in C.A.No.1115 of 2010; and (iii) to grant an interim injunction restraining ARCIL from alienating the property, pending disposal of the other two applications.
4. The main grounds on which Mr.R.Senthilkumar, learned counsel for the applicant herein opposes the entitlement of the first respondent herein (ARCIL) to bring the property to sale in exercise of their rights as a mortgagee, are as follows:-
(i) that the company-in-liquidation had no right, title or interest to create a mortgage in favour of ARCIL and its predecessor in interest, as the allotment of the property in question was not an absolute one, but coupled with an obligation to have backward integration with the newly promoted joint venture company AROCHEM;
(ii) that the mortgage created by the company-in-liquidation is also void in view of the negative expression contained in Section 44-A of the Land Acquisition Act, 1894;
(iii) that the order permitting ARCIL to take possession and bring the property to sale is also contrary to a restraint order issued by the Division Bench of the Bombay High Court on 17.4.2003;
(iv) that the District Collector had already passed an order of distraint under the Tamil Nadu Revenue Recovery Act and hence ARCIL cannot proceed with the sale;
(v) that in view of the terms and conditions of the original allotment, made by the Government of Tamil Nadu, the land was liable to be resumed by the Government, once the company went into liquidation;
(vi) that the assignment of the loan outstanding by ICICI Bank in favour of ARCIL, was after the institution of two suits and hence hit by Section 52 of the Transfer of Property Act; and
(vii) that the assignment agreement shows that the consideration paid by ARCIL was Rs.101.97 crores, when the consideration fixed 3 years earlier was Rs.289 crores, thereby showing that there is something grossly wrong with the very assignment, on the basis of which the applicant is laying a claim.
5. However, Mr.N.R.Chandran, learned Senior Counsel appearing for ARCIL, contended -
(i) that since the applicant had already chosen to question the very allotment of the land of the extent of acres 168.35 in favour of the company-in-liquidation, in two independent suits C.S.Nos.67 and 73 of 1996, both of which are pending as on date, the applicant cannot seek the very same reliefs couched in a different language, in the above applications;
(ii) that the applicant has no right to question the mortgage created by the company-in-liquidation, when the joint venture company AROCHEM has not chosen to question the same, either before this Court or in the civil suit;
(iii) that the Government took a conscious decision, as reflected in their letter dated 22.6.1994, to allot the land in question to the company-in-liquidation on condition that the company paid all costs incurred in the land acquisition and hence, the company-in-liquidation was within their right to create a mortgage, after paying the costs incurred in land acquisition;
(iv) that the company-in-liquidation also entered into an Agreement dated 27.6.1994 with the Government under Section 41 of the Land Acquisition Act and paid the entire costs of acquisition and also got into possession of the land;
(v) that under Clause 5 of the said Agreement, the company-in-liquidation was entitled to have the lands vested in them with absolute title, once the cost of acquisition was paid;
(vi) that what is contained in Clause 6(d) of the Agreement, is only a right conferred upon the Government to resume the land and so long as such right is not exercised by the Government, it is not open to the applicant to question the mortgage;
(vii) that the applicant who has instituted two suits, had not even impleaded the Government as a party to the suits and had not sought in the suits, any relief in respect of the property in question and hence the applicant cannot even take recourse to Section 52 of the Transfer of Property Act;
(viii) that the Agreement between the Government and the company-in-liquidation did not provide for automatic resumption of the land and Section 44-A of the Land Acquisition Act, did not prohibit the creation of a mortgage; and
(ix) that therefore, the applicant cannot oppose the sale of the property by the first respondent-mortgagee.
6. Mr.S.Gomathinayagam, learned Additional Advocate General, appearing for the State of Tamil Nadu, contended -
(i) that under Clause 6(a) of the Agreement dated 27.6.1994, the allotment was subject to the company-in-liquidation using the land for the purpose for which it was acquired;
(ii) that by virtue of Clause 6(c)(v) of the Agreement, the company-in-liquidation was bound by Clause 6(d) which entitles the Government to resume the land in the event of the company getting wound up;
(iii) that the first respondent-ARCIL is not entitled to sell the property, especially when there is an interim prohibitory order granted by the Division Bench of the Bombay High Court;
(iv) that the first respondent-ARCIL is not entitled to sell the property, especially when there is a distraint order passed by the District Collector;
(v) that at any rate, what was handed over to the company-in-liquidation was only about 31 acres of land, under G.O.Ms.No.978, Revenue Dated, 20.12.1994 and hence the company could not have created a valid mortgage; and
(vi) that Section 44-A of the Land Acquisition Act, requires previous sanction for mortgage.
7. The learned Additional Advocate General also brought to my notice, a show cause notice for resumption issued by the Government on 14.6.2013, to drive home the point that the Government has in fact initiated action in terms of Section 47-A(1) of the Land Acquisition Act.
8. Mr.Arvind Shukla, learned Official Liquidator, raised a preliminary objection as to the maintainability of the above applications, on the ground that the company was ordered to be wound up in 2009 and that after the vacation of the stay earlier granted by the Division Bench, to the order of winding up, the Official Liquidator took possession and ARCIL initiated proceedings under the Secruitisation Act. Therefore, the learned Official Liquidator contended that the Company Court is not the Forum in which the applicant can agitate its rights, when the secured creditor had taken recourse to the Securitisation Act, 2002.
9. I have carefully considered the above submissions. I shall first take up the issue of maintainability raised by the learned Official Liquidator and by the learned Senior Counsel for ARCIL.
MAINTAINABILITY:
10. Both the Official Liquidator and Mr.N.R.Chandran, the learned Senior Counsel for ARCIL, challenge the very maintainability of the above applications, but on different grounds. According to the learned Official Liquidator, ARCIL which is a secured creditor, is exercising rights under the Securitisation Act, 2002 and hence the opposition to the same by the applicant cannot lie before the Company Court. In this regard, the learned Official Liquidator as well as Mr.N.R.Chandran, learned Senior Counsel for ARCIL also rely upon the decision of the Supreme Court in The Official Liquidator vs. Allahabad Bank {2013 (3) Scale 401}.
11. In response to the above contention, Mr.R.Senthilkumar, learned counsel for the applicant submitted that the jurisdiction of this Court under Section 446 (2) (d) of the Companies Act, 1956, to determine any question of priorities or any other question whatsoever, whether of law or fact, is well accepted by the Supreme Court in Sudarsan Chits (I) Ltd vs. O.Sukumaran Pillai {Vol.58 (1985) CC 633}, which was followed by a Division Bench of this Court in V.Radhakrishnan vs. P.R.Ramakrishnan {Vol.78 (1992) CC 694}. The learned counsel also relies upon the decision of the Division Bench of this Court in Asset Reconstruction Company vs. The Official Liquidator {2006 (3) CTC 529}, wherein a distinction was made between cases in which proceedings had already been initiated under the RDB Act of 1993 and cases in which measures under Section 13 of the Securitisation Act, are initiated in respect of a company already in liquidation. The Division Bench held in para 13 of the said decision that where a bank had already initiated proceedings under the RDB Act, 1993, the Recovery Officer is entitled to proceed with the sale, after notice to the Official Liquidator. But where no proceedings have been initiated under the RDB Act, 1993, and the bank seeks to initiate measures under Section 13 of the Securitisation Act, the bank will have to obtain the leave of the Company Court.
12. I have carefully considered the rival submissions on this issue. The decision of the Supreme Court in Sudarsan Chits and the decision of this Court in V.Radhakrishnan, arose much before the RDB Act, 1993 and Securitisation Act, 2002 came to be enacted. Therefore, those decisions deal with the scope of the power available to the Company Court under Section 446. In general terms, there can be no dispute about such a power.
13. But in so far as the conflict between the power of the Debts Recovery Tribunal under the RDB Act, 1993 and the power of the Company Court is concerned, the Supreme Court attempted to settle the same in Allahabad Bank vs. Canara Bank {2000 (4) SCC 406}. It was held in the said decision that in view of Section 34 of the RDB Act, the Tribunal has exclusive jurisdiction and that the Company Court cannot use its powers under Section 442 of the 1956 Act. But while construing Section 29 of the State Financial Corporations Act, the Supreme Court held in International Coach Builders vs. Karnataka State Financial Corporation {2003 (10) SCC 482} that the power under Section 29 can be exercised only so long as there is no order for winding up. However, in Rajasthan State Financial Corporation vs. Official Liquidator {2005 (8) SCC 190}, the issue was referred to a 3 member Bench. Eventually, the larger Bench held therein (i) that the Debts Recovery Tribunal, acting under the RDB Act, 1993 would be entitled to order the sale of the properties of even a company-in-liquidation, but only after notice to the Official Liquidator; and (ii) that if the RDB Act, 1993 had not been set in motion, the creditor should approach the Company Court.
14. Therefore, in The Official Liquidator vs. Allahabad Bank {2013 (3) Scale 401}, the Supreme Court reiterated (i) that DRT has exclusive jurisdiction to sell the properties in a proceeding instituted by the Banks and Financial Institutions; (ii) that at the time of auction and sale, the Official Liquidator should be associated with the same, to ensure that there is no irregularity in the conduct of the auction and that the auction was conducted in a fair, transparent and non-arbitrary manner; (iii) that if the Official Liquidator is of the opinion that the sale was vitiated by irregularities, he has only one remedy viz., to challenge the order passed by the Recovery Officer before the Debts Recovery Tribunal itself, but not before the Company Court.
15. Therefore, it is clear that if any one is aggrieved by the sale of a secured asset, either by the secured creditor under the Securitisation Act, 2002 or by the Recovery Officer under the RDB Act, 1993, such a person has to go only before the Debts Recovery Tribunal and cannot come to the Company Court. Even the Official Liquidator, as per the latest decision of the Supreme Court in Official Liquidator vs. Allahabad Bank, has to go only before the Debts Recovery Tribunal and cannot seek redressal from the Company Court. To this extent, the law is very clear. Even in the decision in Kanaiyalal Lalchand Sachdev vs. State of Maharashtra {2011 (2) SCC 782}, the Supreme Court reiterated that as against the action of the bank in taking possession through Section 14 of the Securitisation Act, 2002, only an appeal would lie under Section 17.
16. But in the case on hand, there is a small twist. The applicant herein has not challenged in these applications, any of the measures taken by the first respondent ARCIL under Section 13 of the Securitisation Act. The applicant has also not challenged any order passed or sale conducted by the Recovery Officer of the Debts Recovery Tribunal, in a proceeding under the RDB Act, 1993. If the applicant has challenged in these applications, any of the above two, I would have had no hesitation in throwing these applications out in limini. What the applicant seeks in these applications, is only to recall and set aside the order dated 20.12.2010, passed in C.A. Nos.1114 and 1115 of 2010.
17. It is seen from admitted facts that ARCIL issued a notice under Section 13(2) of the Securitisation Act, on 19.3.2009. Even before the expiry of 30 days thereof, an order winding up the company was passed on 17.4.2009. This order of winding up was stayed by the Division Bench on 5.5.2009 and the stay order was lifted on 26.4.2010. Admittedly, ARCIL invoked Section 13(4) of the Securitisation Act, 2002, only on 13.5.2010.
18. The applicant herein has not come up with a prayer for setting aside the possession notice issued by ARCIL on 13.5.2010. If the applicant had come up with such a prayer, their application would have been dismissed, by citing the aforesaid decisions of the Supreme Court. But the applicant has come up with a prayer for recalling the orders that ARCIL secured from this Court in their applications C.A.Nos.1114 and 1115 of 2010. The reliefs sought by ARCIL in C.A.Nos.1114 and 1115 of 2010 are as follows:-
"C.A.No.1114 of 2010:
This Company Application praying this Court to uphold the actions of the applicant as a rightful exercise of its entitlement under the provisions of the Act.
C.A.No.1115 of 2010:
This Company Application praying this Court to put back the applicant in possession of the Schedule mentioned property to the applicant herein."
19. In other words, contrary to the principles of law now canvassed by them, ARCIL itself came up with a prayer before the Company Court seeking a seal of approval for the measures taken by them under the Securitisation Act, 2002. This Company Court also granted such a seal of approval by the order dated 20.12.2010. The operative portion of the order passed on 20.12.2010 by this Company Court is as follows:-
"4. In reply to these two applications and to the submissions made by the learned Senior Counsel, the learned Deputy Official Liquidator would submit that possession was taken on the vacation of the stay by the Division Bench. However, he adds that they shall hand over possession back to the applicant/company subject to the following conditions:
(i) Whenever the applicant sells the assets/the property, they must associate the Official Liquidator and it must be done with his knowledge;
(ii) The applicant must settle the charges paid by the Official Liquidator towards security charges;
(iii) The selling is subject to the provisions of Section 529(A) of the Companies Act.
(5) Since this proposal is acceptable to the applicant that the orders be passed closing these two applications.
(6) Accordingly, these two applications are closed and the Official Liquidator shall hand over the possession of the property to the applicant on or before 4.1.2011.
(7) The Official Liquidator shall give a statement of charges paid/payable to the security personnel who are guarding the property to the applicant and the applicant on getting the same shall arrange to settle the same immediately.
(8) In the result, these two applications are closed in the above terms."
20. From the reliefs sought by ARCIL in their applications C.A.Nos.1114 and 1115 of 2010 and the orders passed in those applications, it is clear that ARCIL not only got a seal of approval for the measures taken by them under the Securitisation Act, but also got back possession of the property from the Official Liquidator. Therefore, the applicant could not have gone merely under the Securitisation Act to work out their remedies. If the applicant had gone only to the Debts Recovery Tribunal, for working out their rights, the order dated 20.12.2010 passed by the Company Court would have been cited as a clear impediment for the DRT to consider the issue.
21. As a matter of fact, the applicant is not seeking any substantive relief in the above applications. All that the applicant is seeking in the above applications, is to recall the order dated 20.12.2010. By merely recalling the order dated 20.12.2010, neither the mortgage created by the company-in-liquidation nor the assignment of the debt made by ICICI Bank in favour of ARCIL nor the measures taken by ARCIL under the Securitisation Act, would go. By recalling the order dated 20.12.2010, the possession notice issued by ARCIL on 13.5.2010 will not automatically go. On the contrary, by recalling the order dated 20.12.2010, the impediment created in the way of the applicant for challenging before the appropriate Forum, (i) the mortgage created by the company-in-liquidation, (ii) the assignment of the debt made by ICICI Bank in favour of ARCIL and (iii) the measures taken by ARCIL under the Securitisation Act, would go. Thereafter, it would be upto the applicant to approach the appropriate Forum and seek those reliefs viz., the setting aside of the mortgage created by the company-in-liquidation, setting aside of the assignment of the debt made by ICICI Bank in favour of ARCIL and the setting aside of the measures taken by ARCIL under the Securitisation Act.
22. Therefore, the present applications are maintainable before this Court, since they merely seek the recalling of the earlier orders passed by this Court, without seeking substantial reliefs.
23. Apart from the question of maintainability raised by the Official Liquidator from one perspective, Mr.N.R.Chandran, learned Senior Counsel for ARCIL also raised the question of maintainability, from a different perspective. It is his contention that the applicant has no locus standi and that the applicant cannot convert the above applications into the two suits that they had already filed in C.S.Nos.67 and 73 of 1996.
24. The issue of locus standi is raised on the short ground that the applicant is actually attempting to advance the cause of the joint venture company AROCHEM in the above applications, when AROCHEM itself was not a party either to the two civil suits or to the present applications. To test the correctness of this contention, we may have to go back to certain facts, which I shall do now.
25. As pointed out in the narration of facts in para-3, the applicant herein (which was formerly known as Madras Refineries Limited), entered into a Memorandum of Understanding with Southern Petrochemical Industries Limited (SPIC) on 17.1.1989 for the promotion of a joint venture company by name National Aromatics and Petrochemicals Corporation Limited (referred to as AROCHEM), for the manufacture of O-xylene, Benzene and PTA. The Government of Tamil Nadu accorded administrative sanction, by G.O.Ms.No.648, Industries Department, dated 16.9.1989 for the acquisition of 1655.92 acres of patta and poramboke lands in the villages of Mathur, Kosapur, Amullavoyal, Vaikadu, Elanthancheri and Manali, under Part-II of the Land Acquisition Act, 1894. By the said order, the District Revenue Officer was directed to send proposals for the acquisition of lands by invoking the urgency clause immediately.
26. A careful perusal of G.O.Ms.No.648, Industries, dated 16.9.1989, would show that at the time when the said order was passed, neither SPIC nor the company-in-liquidation, was anywhere in the picture. The Government Order was actually in response to a letter of Madras Refineries Ltd., (the applicant herein) dated 14.3.1988. This is why in paragraph 3 of the said Government Order, the Government directed that the expenditure towards the cost of 1015 acres of land (out of the total extent of 1655.92 acres) including establishment charges should be collected from Madras Refineries Ltd. Again in para-11 of the Government Order, the Government directed the expenditure to be duly recovered only from the applicant herein.
27. But after about 6 years, the Government decided to allot 168.38 acres of land in Kosapur village to the company-in-liquidation, as seen from the letter of the Government dated 22.6.1994. It is also seen from the said letter that this land was part of what was to be given to AROCHEM. The decision to divert one portion of the lands intended for AROCHEM, to the company-in-liquidation appears to have been taken by the Government at the instance of SPIC. Therefore, two conditions were imposed by this letter viz., (i) that the company-in-liquidation should bear all costs incurred in the acquisition; and (ii) that as and when AROCHEM implements the original project, the Unit floated by the company-in-liquidation should be integrated with AROCHEM backwardly.
28. Therefore, it is clear that under the original order G.O.Ms.No.648, dated 16.9.1989, granting administrative sanction, it was the applicant which was directed to pay for the entire extent of 1015 acres. There is no denial of the fact that the applicant had paid at least a part of the amount that they were liable to pay under the Government Order. There is also no denial of the fact that the applicant is one of the two parents of the joint venture company and that the very acquisition of land for the joint venture company was made at their instance and at their cost. Therefore, the applicant cannot be said to have no locus standi to question the diversion of a part of the land to a surrogate child delivered by the other spouse viz., SPIC, out of infidelity. As a matter of fact, the company-in-liquidation questioned the maintainability of the civil suits on the ground (i) that AROCHEM was not the plaintiff; and (ii) that the Government was not made a party. Both these objections were turned down by R.Jayasimha Babu, J., in paragraph 71 of his order dated 2.7.1996 passed in the interlocutory applications, holding inter alia (i) that the applicant's suit was a derivative action for the benefit of AROCHEM; and (ii) that the non-joinder of Government is not of any consequence, as the land was controlled by the company.
29. The next part of the contention of Mr.N.R.Chandran, learned Senior Counsel for ARCIL is that the applicant herein cannot convert the present applications into the two suits that they had already filed. According to the learned Senior Counsel, the applicant seeks to argue those two suits in the present applications and that therefore it cannot be permitted.
30. In order to test the correctness of the above contention, it is necessary to see what those two suits are about.
31. C.S.No.67 of 1996 is a suit filed by the applicant against (i) SPIC (ii) SPIC Petrochemicals Ltd., (company-in-liquidation) (iii) AROCHEM (joint venture) (iv) SPIC Aromatics and Chemicals Corporation Ltd (v) A.C.Muthiah (vi) P.R.Sundaravadivelu (vii) R.Soundarajan and (viii) K.Govindarajan. The reliefs sought in the said suit are as follows:-
"(i) That the PTA/PFY project being implemented by the first defendant through the second defendant herein is in breach of trust and in violation of the Memorandum of Understanding dated 17.1.1989 entered into between the plaintiff and first defendant;
(ii) Declaration that the Aromatics project proposed to be implemented by the first defendant through the 4th defendant for the manufacture of para-xylene and other aromatic products, is in breach of trust and contrary to the Memorandum of Understanding dated 17.1.1989 entered into between the plaintiff and first defendant;
(iii) For a consequential permanent injunction restraining the first defendant acting by itself or through second defendant, its agent or any other person acting under the directions of the first defendant, from taking any further steps in implementing its PTA/PFY project;
(iv) For a permanent injunction restraining the first defendant acting through the 4th defendant or by itself or through its agent or any other person from taking any steps in implementing its aromatic projects;
(v) For costs of the suit."
32. C.S.No.73 of 1996 is filed by the applicant herein against (i) A.C.Muthiah (ii) P.R.Sundaravadivelu (iii) R.Soundarajan (iv) K.Govindarajan (v) Sri Hari (vi) SPIC (vii) SPIC Petrochemicals Ltd and (viii) AROCHEM. The reliefs sought in this suit are as follows:-
"(a) A declaration that defendants 1 to 6 have committed fraud and breach of trust by illegally and unauthorisedly transferring the 168.38 acres of land, more fully described in the Schedule hereunder allotted to the 8th defendant in favour of the 7th defendant and for a consequential declaration that the said lands are being held by the 7th defendant in trust for the 8th defendant.
(b) A permanent mandatory injunction directing the 7th defendant to hand over possession to the eighth defendant the 168.38 acres of land, more fully described in the Schedule hereunder in respect of which possession was obtained as a result of acts of breach of trust committed by defendants 1 to 6;
(c) A permanent injunction restraining the 7th defendant from carrying on any further construction or other activities on the 168.38 acres of land, more fully described in the Schedule hereunder illegally obtained and in the possession of the seventh defendant on account of the acts of breach of trust committed by defendants 1 to 6;
(d) For costs of the suit."
33. From the array of parties in both the above suits and from the reliefs sought for in both the suits, it is clear that the applicant had challenged (i) the very creation of the company-in-liquidation by the joint venture partner SPIC in utter breach of trust and violation of the MOU dated 17.1.1989 and (ii) the very transfer of 168.38 acres of land in favour of the company in liquidation, from out of the lands originally intended to be allotted to the joint venture company. Therefore, today if the suits are decreed, the very foundation on which the edifice of mortgage in favour of ICICI Bank was built, would crumble.
34. Pending disposal of both the above suits, the applicant herein also sought certain interim orders of injunction in O.A.Nos.77 and 78 of 1996 in C.S. No.67 of 1996 and in A.Nos.86, 87 and 555 of 1996 in C.S.No.73 of 1996. The reliefs sought in O.A.Nos.77 and 78 of 1996 were for temporary injunctions restraining SPIC and the two new companies floated by it viz., (i) SPIC Petrochemicals Ltd (company-in-liquidation) and (ii) SPIC Aromatics and Chemicals Ltd., from proceeding to implement the Petrochemical Project and Aromatic Project, pending disposal of the suit. The reliefs sought in O.A.Nos.86 and 87 of 1996 were for (i) an interim mandatory injunction to return 168.38 acres of land and (ii) an interim injunction restraining the company-in-liquidation from proceeding further with the construction.
35. By a common order dated 2.7.1996, R.Jayasimha Babu, J., disposed of all the interlocutory applications, to the following effect:-
"(1) Subject to MRL depositing in this Court a sum of Rs.75.68 crores which sum is equal to the sum advanced by SPIC to SPC as on 15.3.1996 towards share capital, within eight weeks from today, SPC and SAL shall on such deposit being made, amalgamate with AROCHEM, and the project now being implemented by SPC shall be implemented by AROCHEM thereafter. Neither SPC nor SAL shall make any public issue nor shall they induct any one as shareholder (other than MRL) in the meanwhile, and thereafter if the deposit is made. This direction is made to ensure that MRL makes good its claim that it is ready and willing to make the necessary investment. MRL has to show by action that it has the money and will invest the same. SPC & SAL which are but the corporate veils for SPIC as of now, should not change that character so as to ensure amalgamation, SPIC which has repeatedly promised integration/merger cannot be allowed to wriggle out of the MOU and SAL carry on with SPC & SAL projects on its own and to the exclusion of MRL, if MRL demonstrates its readiness to invest. On amalgamation of SPC & SAL with AROCHEM, the deposit if made by MRL shall be paid to AROCHEM for being utilised towards shares for MRL.
(2) MRL shall also give an undertaking that it will invest in further shares upto 26% of the equity of AROCHEM which will have to be not less than Rs.758 crores, as recommended by IDBI in its appraisal report submitted to AROCHEM. Such investment should be so made as to match that of SPIC in AROCHEM.
(3) These directions are issued in order to ensure the continued implementation of the project, while compelling SPIC, SPC & SAL not to continue their breach of the MOU. SPC's proclaimed stand also is that its project is for the benefit of AROCHEM.
SAL was incorporated without the consent of MRL or AROCHEM in violation of the MOU. SPIC's President had repeatedly proclaimed at the meeting of Board of AROCHEM and in the letter of President of SPIC that aromatic project shall be carried out by AROCHEM and SPC would be merged with AROCHEM so that all the three projects, aromatics, PTA and PFY will be owned eventually AROCHEM. The submission of the counsel for defendants also was that uninterrupted implementation would ensure that AROCHEM will have on a platter a cost effective project.
(2) The SPC's project having been appraised by IDBI which has also appraised AROCHEM's project MRL will not at liberty to object to product mix and the cost and estimated product by IDBI. This condition is imposed to ensure that MRL does not in its shortsightedness endanger the project by raising disputes about the product mix or costs.
(3) If even after MRL deposits the sum of Rs.75.68 crores and further gives the undertaking, SPC and SAL do not amalgamate with AROCHEM within eight weeks of the date of such deposit by MRL, an injunction restraining them from proceeding further with their projects shall operate. SPC and SAL cannot be permitted to continue their violation of the MOU with impunity, and disobey the directions issued by this Court.
(4) If MRL fails to deposit the sum of Rs.75.68 crores and furnish the undertaking within eight weeks, SPC and SAL will be at liberty to proceed to implement the project on their own subject to MRL's claim for damages if any for breach of the MOU.
97. The directions as above are unusual. However, they are necessary to adequately and fairly protect the interest of both parties. The relief of injunction is an equitable and discretionary relief. It has necessarily to be moulded having regard to the special facts of each case. Merely rejecting or allowing the application for injunction would result in injustice to one or the other party in the special facts of this case involving as it does a mega industrial project."
36. As against the aforesaid order of the learned Judge, the applicant herein filed a set of 4 appeals in O.S.A.Nos.171 to 174 of 1996. These appeals were filed on the ground that the conditions imposed by the learned Judge for the grant of interim orders as prayed for, were not in accordance with law. Similarly, SPIC as well as the company-in-liquidation jointly filed a set of 4 appeals in O.S.A. Nos.190 to 193 of 1996, challenging the order of the learned Judge.
37. By a common order dated 18.3.1997, a Division Bench of this Court allowed all the appeals filed by the applicant herein and dismissed the appeals filed by SPIC and the company-in-liquidation. The effect of the order of the Division Bench was that the interim orders of injunction prayed for by the applicant in O.A.Nos.77 and 78 of 1996 in C.S.No.67 of 1996 and in O.A.No.86 of 1996 in C.S.No.73 of 1996 were granted unconditionally in favour of the applicant herein. In other words, the Division Bench granted (i) an interim injunction restraining SPIC and the company-in-liquidation from implementing the Purified Teraphthalic Acid (PTA) and PFY project through the company-in-liquidation (ii) an interim injunction restraining SPIC from implementing the aromatic project through SPIC Aromatics Limited and (iii) an interim injunction restraining the company-in-liquidation from carrying on any further construction on the land of the extent of 168.38 acres. However, the Division Bench dismissed the prayer of the applicant in O.A.No.87 of 1996 in C.S.No.73 of 1996 for an interim mandatory injunction, directing the respondents to hand over possession of the land of the extent of 168.38 acres, on the sole ground that such a relief could not be granted at that stage.
38. As against the common order passed by the Division Bench in all the above appeals, SPIC as well as the company-in-liquidation filed special leave petitions in SLP(Civil) Nos.13495 to 13500 of 1997. All the special leave petitions were dismissed by the Supreme Court by an order dated 24.10.1997. Consequently, the interim orders of injunction granted in favour of the applicant herein, attained finality.
39. It appears that in the course of hearing of the appeals before the Division Bench, a request was made by the learned counsel appearing for the applicant that there were very serious irregularities in the matter, warranting the initiation of an investigation by CBI. Therefore, by a separate order, the Division Bench summoned 4 sets of files from the Chief Secretary to the Government of Tamil Nadu. After perusing the same, the Division Bench ordered a probe by CBI.
40. The relevant portion of the order of the Division Bench, passed on the same date viz., 18.3.1997, but separately, requires reproduction. Therefore, it is extracted as follows:-
"5. It is apparent from the sequence of events that A.C.Muthiah made a potently false representation to the Chief Secretary, Government of Tamil Nadu in his letter dated 4.4.1994 with regard to the decision of the Board of AROCHEM. The omission of PTA in the letter dated 5.1.1994 is an intentional and deliberate misrepresentation with regard to his true intention. The true intention was to execute the PTA/PFY project of AROCHEM on its own to the exclusion of AROCHEM, knowing fully that MRL was not agreeable to such a course of action, the reference to PTA was dropped. This is not only a clear case of misrepresentation but is evident of determination to obtain the land by keeping the MRL in dark about the true intention of SPIC.
6. The allotment of land has been made in violation of the minutes of the High Power Committee and the same has been made surreptitiously and collusively as is clear from the following:-
(i) The Government did not ascertain whether the conditions contained in the minutes of The High Power Committee with regard to the constitution of the new JVC being approved by the Board had been specified.
(ii) The order of allotment referred to in the PTA, which was a variance with the order of the High Power Committee.
(iii) The actions of the Government seem to have been influenced by the letter of A.C.Muthiah dated 4.4.1994 addressed to the then Chief Secretary, Government of Tamil Nadu.
(iv) The objections of the Chairman, AROCHEM conveyed to the Government of Tamil Nadu and to the AROCHEM officials vide his letters dated 7.2.1994, 17.2.1994, 10.3.1994, 22.6.1994 and 24.6.1994 only resulted in the Vice Chairman and officials of AROCHEM speeding up the process of delivery of AROCHEM land back to the Government and securing its reallocation with unholy haste to its own company. The whole action is in mala fide and in collusion between Mr.A.C.Muthiah, Mr.K. Govindarajan, Project Director, Mr.S.Hari, Secretary of AROCHEM.
7. The learned Senior Counsel appearing for the MRL also submitted that the entire land in question was acquired by the Government of Tamil Nadu for the purpose of setting up Aromatic Project through MRL. The acquisition proceedings was confirmed by this Court in W.P.No.160 of 1991, which was upheld by the Division Bench of this Court in W.A.No.1397 of 1997 and by the Supreme Court. The learned Senior Counsel also submitted that the Project Director and Secretary to AROCHEM, who are employees of AROCHEM, has no business to part with the tile deeds of the valuable developed land without AROCHEM's Board Resolution. In fact, there was an objection by the Chairman of AROCHEM not to hand over the title deeds relating to the lands without any AROCHEM's Board Resolution. The said K.Govindarajan, Project Director of AROCHEM, now resigned his post in the AROCHEM and joined as Director in SPC, formed by SPIC. He was also said to be receiving salary both from AROCHEM and the new company formed by SPIC for a particular period. The conduct of the Project Director and the Secretary of AROCHEM is wholly unprofessional. The learned Senior Counsel alleged that there were certain irregularities committed by the Vice Chairman, Project Director and the Secretary of AROCHEM in collusion with some Government officials concerned in the matter of allotment of AROCHEM's land to SPC for extraneous consideration. Therefore, the learned Senior Counsel made a request to this Court to refer the matter for investigation by CBI to find out the irregularities committed in the matter of re-allotment of AROCHEM's land to SPC.
8. Accordingly in order to find out whether there were any irregularities said to have been committed by the Vice Chairman, Project Director and Secretary of AROCHEM in collusion with Government officials concerned in the matter of re-allotment of AROCHEM's land to SPC, we have sent for the records for the Government of Tamil Nadu. Accordingly, the Chief Secretary to Government of Tamil Nadu sent the following files viz., (1) Note file of C.No.4983/MIH.I/94 containing pages 1-70 nf.; (2) Note file Lr.NO.1986/MIH.I/94.8, Inds. dt.15.2.1994 (pages 1-26 nf); (3) Original of G.O.2(D) No.201, Inds. (MIF) dt.22.9.1992 consisting of current file, pages 1-73 of and note 1-27 nf; and (4) Original of File C.No.6981/MIH.I/94 consisting of pages 1-259 of and pages 1-72nf. We have gone through the same. After perusal, we hand over the said files submitted to this Court, to the Director, CBI, with a direction to probe into this matter to find out whether there were any irregularities committed in the matter of re-allotment of land to SPC, as alleged by the learned Senior Counsel for MRL. The CBI shall file its report to this Court within eight weeks from today. Post this matter after eight weeks. 18.3.1997 Registry to note:
The Registrar is directed to hand over the files mentioned in para 8 above to the Director, CBI, with a copy of this order."
41. In the light of the order passed by the Division Bench, it is impossible to accept the contention that the applicant has no locus standi. The contention that the applicant is virtually seeking a relief that could be sought only in those suits and that in the above applications, the applicant is actually arguing those two suits, cannot be accepted. As pointed out earlier, the applicant has obtained 3 prohibitory orders of injunction against the company-in-liquidation. They are (i) an interim injunction restraining the PTA/PFY project (ii) an interim injunction restraining another company floated by SPIC from carrying on with the Aromatic project and (iii) an interim injunction restraining the company-in-liquidation from putting up any construction in the land which is the subject matter of these applications. The applicant also sought an interim mandatory injunction to put them back into possession of these lands, but the same was refused by the Division Bench only on the ground that such a relief could not be granted at that stage.
42. But the orders passed in C.A.Nos.1114 and 1115 of 2010 on 20.12.2010, enable ARCIL to go ahead with the sale under the Securitisation Act, 2002. This virtually puts a lid on all issues raised in those two suits. Once ARCIL proceeds with the sale, the relief sought by the applicant in paragraph 20(b) of the suit in C.S.No.73 of 1996, would become infructuous. I cannot today ask the applicant to take out an application in that suit C.S.No.73 of 1996, for the relief that the applicant is seeking in the above applications. Once it is found that the second respondent herein had been ordered to be wound up and once the Company Court has given permission to the secured creditor to proceed with the sale, it is impossible for a Civil Court to annul the effect of that order in a suit.
43. My power, as a Civil Court, is not only different, but also subject to my power as a Company Court, in respect of a company which has been ordered to be wound up. Once a company is ordered to be wound up, the jurisdiction that is vested in the Company Court in respect of that company, encompasses within itself, the powers of a Civil Court. Therefore, the permission granted by a Company Court for the sale of a property, cannot be annulled by a Civil Court in a suit. Therefore, the applicant is right in approaching this Company Court for recalling the permission granted by it.
44. Moreover, the applicant is not seeking any substantial relief in the above applications, that has already been sought or that should actually be sought in the civil suit. The applicant should work out their substantial rights only in those suits, as there are parties other than the company-in-liquidation, in those suits. As against the secured creditor, the applicant may have to work out their remedies before the DRT. This is why the applicant is seeking a very limited relief here. All that the applicant is seeking in the present applications, is only to recall the permission granted to the secured creditor to sell the property. Once the permission granted by this Court is recalled, the right available to the secured creditor under the Securitisation Act and the right available to the applicant not only to oppose the same, but also to reignite the civil suits, will come back alive. If viewed from this perspective, it will be clear that the applicant is not seeking any relief that they had already sought in the civil suits or they must have sought in the civil suits. The applicant is merely seeking the removal of an obstacle created by this Court by its order dated 20.12.2010, without seeking any further relief. Therefore, the maintainability of these applications is beyond any pale of doubt.
CONTENTIONS ON MERITS:
45. On merits, the right of the company-in-liquidation to create a mortgage in favour of ICICI Bank Ltd., and the rights of ARCIL, flowing out of the assignment of the debt from the mortgagee, are questioned on the basis of -
(i) Section 7 of the Transfer of Property Act, 1882 and Clause 6(d) of the Agreement dated 27-6-1994;
(ii) Sections 41 and 52 of the Transfer of Property Act, 1882;
(iii) Section 44-A of the Land Acquisition Act, 1894;
(iv) An order of restraint passed by the Division Bench of the Bombay High Court; and
(v) A distraint order passed by the District Collector under the Tamil Nadu Revenue Recovery Act.
Therefore, I shall take up each one of them separately.
TRANSFERABLE INTEREST AND RIGHT OF RESUMPTION:
46. Mr.R.Senthilkumar, learned counsel for the applicant contends that the company-in-liquidation did not have a transferable interest in the property in question and that therefore, the company was not competent to create a mortgage, within the meaning of Section 7 of the Transfer of Property Act, 1882.
47. This contention is based upon two things viz., (i) that the allotment of 168.38 acres of land by the Government in favour of the company-in-liquidation, was actually a conditional allotment, subject to the backward integration of the PTA project with AROCHEM and hence there was no absolute right of interest conferred independently upon the company-in-liquidation; and (ii) that the agreement between the Government and the company-in-liquidation dated 27.6.1994 did not authorise the company to mortgage the property.
48. On the first contention, there is virtually no dispute. It is seen from the letter of the Government bearing No.4983/MIH-94-5 dated 22.6.1994 that the Government agreed in principle to allot 168.38 acres to the company-in-liquidation subject to two conditions viz., (i) that they remit all costs incurred in the land acquisition; and (ii) that when AROCHEM got all clearances and decided to go ahead with the project, the Unit could be backwardly integrated with it.
49. According to Mr.N.R.Chandran, learned Senior Counsel for ARCIL, the company-in-liquidation had complied with the first condition by remitting the costs of acquisition. But the occasion for complying with the second condition did not arise, as the applicant went to Court within 18 months of allotment. The allotment was in June 1994 and the suits were instituted by the applicant in January 1996. Moreover, the applicant did not challenge the allotment, in the suits instituted by them. Though there is a prayer in the second suit for handing over possession, the applicant did not seek to set aside the allotment. Therefore, the learned Senior Counsel for ARCIL submitted that the applicant cannot now question the same.
50. It is true that the letter of allotment contained two conditions and that one condition was already complied with. As rightly contended by Mr.N.R.Chandran, the learned Senior Counsel for ARCIL, the occasion for complying with the second condition could have arisen only after AROCHEM got all clearances and decided to go ahead with the project. This will be clear, if the relevant portion of the letter of the Government dated 22.6.1994 is extracted. It reads as follows:-
"The allotment of the above land will be subject to the condition that they remit all costs incurred in the land acquisition by AROCHEM and on the understanding that when AROCHEM gets all the clearances and decides to go ahead with the project, this unit could be backwardly integrated with it."
51. Today it is not the case of the applicant that AROCHEM had already obtained all clearances and that it had decided to go ahead with the project. If this was their case, all that they should have sought in the civil suits, was only to seek backward integration of AROCHEM with the company-in-liquidation. But this is not what the applicant wanted, even at the earliest point of time, when the two suits were filed.
52. Alternatively, the applicant could have, as rightly contended by Mr.N.R. Chandran, learned Senior Counsel for ARCIL, sought a prayer in those two suits for setting aside the allotment. But the applicant did not even make the Government a party to both the suits. The fact that they had knowledge of the allotment is borne out by the pleadings made in the plaint. Even the letter of the Government dated 22.6.1994, was included as one of the plaint documents. In the paragraph relating to cause of action in the second suit, the applicant has cited the letter of allotment dated 22.6.1994.
53. Today things have gone far beyond and the condition for backward integration with AROCHEM, is impossible of being performed, in view of the allottee having already been ordered to be wound up. Therefore, merely on the basis of non-compliance of the second condition contained in the letter of allotment dated 22.6.1994, it is not open to the applicant to contend that the company-in-liquidation had no transferable interest within the meaning of Section 7 of the Transfer of Property Act, 1882.
54. The next limb of this argument revolves around the agreement dated 27.6.1994. It is the contention of the applicant that this agreement did not confer any right upon the company-in-liquidation to mortgage the property.
55. A perusal of the agreement dated 27.6.1994 shows that the same was entered into by the Government, with the company-in-liquidation, in terms of Section 41 of the Land Acquisition Act, 1894. Section 41(1) obliges the company for whose benefit a land is acquired under Part-VII, to enter into an agreement with the Government, providing to the satisfaction of the Government for the following matters:-
(i) Payment to the Government of the cost of acquisition;
(ii) The transfer on such payment of the land to the company;
(iii) The terms on which the land shall be held by the company; and
(iv) The time within which and the conditions on which the company should construct any building or work, that is required for engaging itself in any industry.
56. Keeping in mind the above provisions of Section 41, let us have a look at the agreement dated 27.6.1994. The agreement dated 27.6.1994 contains several features. Clause 1 of the Agreement speaks about the financial obligations on the part of the company-in-liquidation, both towards cost of acquisition as well as towards the expenses incurred by the Revenue and Survey staff. Clause 1 also reiterates the stipulation contained in the allotment letter dated 22.6.1994 that the Unit should be backwardly integrated with AROCHEM.
57. Interestingly, clauses 1(f) and 1(g) of the agreement dated 27.6.1994 contain certain obligations imposed upon the applicant as well as AROCHEM. These two clauses read as follows:-
"(f) M/s.Madras Refineries Limited (MRL) and National Aromatics and Petrochemicals Corporation Limited (AROCHEM) are incurring expenditure in respect of acquisition of land for Aromatics Complex from the inception of the Scheme. As such, the cost of acquisition, cost of Staff, legal expenses and other expenditure connected with the acquisition of the land for Aromatics Complex, certified by the District Revenue Officer (Land Acquisition), Aromatics Complex-MRL, Saidapet, Madras 600 015 shall be shared among the beneficiary Companies on pro-rata basis.
(g) With regard to bearing the cost of rehabilitation of the affected land owners AROCHEM will have to meet the entire expenses by maintaining a single account to be opened by them and finally the entire expenditure should be shared among the beneficiary Companies who were allotted land in the Aromatics Complex on pro-rata basis. The single account will be opened on receipt of advance from the beneficiaries."
58. Clauses 2 to 4 are not relevant for our purpose. Clause 5 declares that upon payment by the company, of the cost of acquisition, the Governor shall execute and do all such acts, deals, matters and things, as may be necessary or proper for effectively vesting the said lands in the company and giving the company an absolute title, subject to the conditions stipulated thereunder.
59. The terms on which the company was supposed to hold the lands, are incorporated in clause 6. This clause 6 contains various stipulations such as (i) restriction not to use the land for any purpose other than the one for which it was acquired; (ii) restriction not to put up permanent structures if there is a reference under Section 18; (iii) obligation to pay ground rent every year; (iv) obligation to complete the formation of the PTA Complex and other downstream projects within 3 years; and (v) obligation to put up constructions strictly in accordance with the specifications prescribed by Technical Authorities. But clause 6 does not contain either a restriction with regard to transfer or alienation or a covenant permitting transfer or alienation.
60. On the contrary, clause 6 (d) confers a right upon the Government to resume the land under certain contingencies. Clause 6(d) reads as follows:-
"(d) That in the event of the Company being wound up or in the event of failure on the part of the Company to carryout any of the terms of this agreement the Government may resume the land and upon such resumption an amount not exceeding one-fourth of the amount paid by the Company as cost of the acquisition may be forfeited to the Government and the balance refunded to the Company, provided that where buildings or other structures have been erected by the Company on the said lands, the Government may at their option either purchase them on payment of their estimated value or direct the Company to remove them at its own cost, within such time as may be allowed by Government."
61. A careful reading of clause 6(d) extracted above would show that it did not provide for automatic resumption of land. The said clause empowered the Government to resume the land and hence the contention of the learned Senior Counsel for ARCIL that such a power has to be exercised by the Government in a manner known to law, is perfectly correct. In fact the understanding of the Government is also to the same effect. This is why the Government claims to have issued a show cause notice dated 29.7.2009 in the proceedings of the District Revenue Officer, Tiruvallur bearing Rc.No.31283/08F3, calling upon the allottee to show cause as to why they should not resume the land.
62. Once it is found that clause 6(d) did not provide for automatic resumption and once it is found that even the Government did not construe the said clause as providing for automatic resumption, it follows as a necessary corollary that an interest in immovable property had certainly been created in favour of the company-in-liquidation by the Government. It is one thing to say that the creation of such an interest was conditional. It is totally a different thing to say that no interest was created.
63. While I would accept that the allotment made on 22.6.1994 and the agreement dated 27.6.1994 created a conditional interest for the company-in- liquidation, in the allotted property, I would not accept the contention that the company did not have any right or interest in the immovable property.
64. Normally, assignment of lands by the Government in favour of private individuals, is not governed by any Statute. They were earlier governed by the provisions of the Board Standing Orders, issued by the Board of Revenue. But these orders have mostly fallen into disuse, as the Government itself had stopped referring to the same these days. Whenever assignments were made in terms of Board Standing Orders, the terms and conditions used to contain a prohibition, regarding alienation or creation of encumbrances. In such cases, any alienation in violation of such a prohibition would be completely invalid.
65. But unfortunately, the Government failed in this case, to incorporate, either in the letter of allotment dated 22.6.1994 or in the agreement dated 27.6.1994, any prohibition restraining the allottee from encumbering the property. Admittedly, the allotment was for industrial purposes. Just as 5 natural elements such as earth, fire, water, air and ether should come together to form life on earth, 4 artificial elements such as land, labour, capital and machinery should come together to establish an industry. Today capital cannot be mobilised, except with assistance from financial institutions. To make financial institutions extend any assistance, it is inevitable that security in the form of immovable property is offered. Therefore, no industry can ever come up, if its right to create a charge on the immovable property is curtailed. This is perhaps the reason why the Government did not impose a restriction either under the letter of allotment or under the agreement, regarding creation of any charge. If the Government had imposed such a restriction, the purpose for which the allotment was made would have become illusory.
66. Therefore, in the absence of any condition in the letter of allotment or the agreement, restraining the company-in-liquidation from creating any charge or mortgage, I do not think that there was any fetter on the right of the company to mortgage the property.
67. It is true that neither the letter of allotment nor the agreement, created a title in the company-in-liquidation, to the property in question. But they created a right in the company-in-liquidation, to have the property vested in them, upon their complying with certain conditions. Section 7 of the Transfer of Property Act, 1882, does not lay emphasis on ownership and title. Section 7 of the Transfer of Property Act, 1882, reads as follows:-
"7. Persons competent to transfer.--Every person competent to contract and entitled to transferable property or authorised to dispose of transferable property not his own, is competent to transfer such property either wholly or in part and either absolutely or unconditionally, in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force."
68. A close reading of Section 7 shows that the entitlement of a person to transfer a property, is linked not to ownership or title. It is linked to either of the two things viz., (i) his entitlement to transfer or (ii) his authority to dispose of transferable property, not his own. Thus, two phrases are of importance in Section 7. They are (i) entitled to transferable property and (ii) authorised to dispose of transferable property, not his own.
69. Therefore, the first contention of the learned counsel for the applicant that the company-in-liquidation had no right in the immovable property, to enable them to create a mortgage, cannot be accepted. It is true that it is a fundamental principle of law that "no one can confer a better title than what he himself has." But in the case on hand, unless the very allotment is taken to have included a right in the company-in-liquidation to create a mortgage, the very purpose of allotment would have stood defeated. The fact that it stands defeated today in any case, is a different matter altogether.
70. Therefore, I hold on the first submission of the learned counsel for the applicant that in the absence of any stipulation in the letter of allotment or the agreement, restraining the company-in-liquidation from creating a charge, it cannot be contended that they had no right. Section 7 of the Transfer of Property Act, 1882, does not support the contention of the applicant.
EFFECT OF SECTIONS 41 AND 52, T.P. ACT
71. The next contention of the applicant is that ICICI Bank is not a bona fide mortgagee, as they had not acted in good faith as required by the proviso to Section 41 of the Transfer of Property Act and that the creation of the mortgage by the company-in-liquidation in favour of ICICI Bank was hit by Section 52 of the Transfer of Property Act.
72. Under Section 41 of the Transfer of Property Act, the transfer made by a person who is the ostensible owner of an immovable property, with the implied or express consent of those interested in the property, is not voidable merely on the ground that the transferor was not authorised to transfer it, provided that the transferee had taken reasonable care to ascertain that the transferor had power to make the transfer and the transferor had acted in good faith. Since it is useful to extract the provision, I do so:-
"41. Transfer by ostensible owner.--Where, with the consent, express or implied, of the persons interested in immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorised to make it.
Provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith."
73. From the language employed in Section 41, it is clear that though an ostensible owner of a property is entitled to transfer it, with the implied or express consent of the persons interested in the property, the transferee is required to prove two things viz., (i) that he had taken reasonable care to ascertain that the transferor had power to make the transfer; and (ii) that he had acted in good faith.
74. In Gurbaksh Singh vs. Nikka Singh {AIR 1963 SC 1917}, the Supreme Court pointed out that Section 41 is an exception to the general rule that a person cannot confer a better title than what he has. Since it is an exception to the general rule, the Supreme Court held that the onus is certainly on the transferee to show (i) that he was the ostensible owner; and (ii) that he had acted in good faith after taking reasonable care to ascertain the power of the transferor to make the transfer. The Supreme Court further pointed out that if the purchaser had the knowledge that the title of the transferor was in dispute and that he had taken a risk in purchasing the same, he cannot be held to have acted in good faith.
75. In the case on hand, the applicant instituted the suits on 29.1.1996 and 2.2.1996 and an order was passed by R.Jayasimha Babu, J., in all the interlocutory applications on 2.7.1996. The company-in-liquidation created an equitable mortgage by deposit of title deeds on 22.7.1996. The applicant has filed a copy of the Memorandum of Deposit of Title Deeds made by the company-in-liquidation in favour of ICICI Bank on 22.7.1996. The Memorandum shows that an equitable mortgage was created by the company-in-liquidation on the strength of about 22 documents. Most important among these 22 documents were (i) G.O.Ms.No.648, dated 16.9.1989, granting administrative sanction for the acquisition of lands for the Joint Venture Project (ii) the letter of allotment dated 22.6.1994 (iii) the agreement dated 27.6.1994 (iv) the various letters of the District Revenue Officer (v) land delivery receipts (vi) Site Map (vii) Legal opinion and (viii) the copy of the order of R.Jayasimha Babu, J., dated 2.7.1996. But unfortunately for ARCIL, none of these 22 documents conferred any title upon the company-in-liquidation to the property in question. They were only documents creating an interest in favour of the company-in-liquidation in the property in question. Such an interest was likely to be enlarged into absolute title, upon the company complying with the conditions contained in those 2 documents. Therefore, the bank, to be entitled to a finding that they acted in good faith, ought to have checked up with the Government, as to whether the company had the authority to mortgage the property. Their failure to check up with the Government, the authority of the company to create a mortgage, on a property the title to which had not passed on to the company, is fatal to their claim. Therefore, the learned counsel for the applicant is right in relying upon Section 41 of the Transfer of Property Act.
76. Now let me take up the contention regarding Section 52. This contention is raised on the premise that the first suit C.S.No.67 of 1996 was filed on 29.1.1996; the second suit C.S.No.73 of 1996 was filed on 1.2.1996; the company-in-liquidation availed a loan from ICICI Bank on 2.2.1996 and created an equitable mortgage only on 22.7.1996, which was actually after an interim order was passed in the suits, on 2.7.1996 by R.Jayasimha Babu, J. Since the first suit did not relate to any immovable property and all parties to the suit were residing or carrying on business within the jurisdiction of this Court, there was no occasion for the applicant to seek leave of this Court under Clause 12 of the Letters Patent. But the second suit related to immovable property and hence the applicant appears to have taken leave under Clause 12 in A.No.463 of 1996. Obviously, the order granting leave was subsequent to the date of availing of loan. Therefore, it is contended by Mr.N.R.Chandran, learned Senior Counsel for ARCIL, that even if Section 52 is presumed to be applicable, to a situation of this nature, the mortgage will not be hit by Section 52, as it was created prior to the date of grant of leave for institution of the suit.
77. Apart from the above, Mr.N.R.Chandran, learned Senior Counsel for ARCIL, also contended that this issue is already covered by the decision of the Debts Recovery Appellate Tribunal and that though a writ petition had been admitted against the order of the DRAT, there is no interim stay. Therefore, the learned Senior Counsel contended that the transaction was not hit by Section 52.
78. It is true that in the appeal M.A.No.109 of 2003, filed by the applicant herein, on the file of the Debts Recovery Appellate Tribunal, Mumbai, against the order of the Debts Recovery Tribunal, appointing a Receiver with power to sell, the Appellate Tribunal dealt with this issue. But a careful reading of the relevant portion of the order of the Appellate Tribunal dated 17.6.2003 would show that the Tribunal never said that Section 52 is not applicable. On the contrary, the Appellate Tribunal said that if the applicant herein succeeded in their suits on the file of this Court, their rights will be higher and that the rights of all transferees pendente lite would be subservient to the applicant's title.
79. In other words, the Debts Recovery Appellate Tribunal refused to interfere with the order of the DRT appointing a Receiver to sell the property, merely on the strength of Section 52. To this extent, I think the Appellate Tribunal was right. Section 52, as rightly pointed out by the DRAT, does not make all transfers void. It only makes all transfers and alienations pending a suit, subject to the outcome of the suit.
80. As a matter of fact, Courts have, many times, refused interim prohibitory orders, on the sole ground that any transfer made during the pendency of the suit, is always subject to the principles contained in Section 52. Therefore, if the applicant succeeds in their suits, all transfers made after the lawful institution of the suits, would automatically give way for the applicant's rights to march ahead.
81. However, one thing requires to be taken note of in this case. The secured creditor has obtained an order on 20.12.2010 for the sale of the property. This order does not make a reference to the suits filed by the applicant herein. If the order dated 20.12.2010 had made it clear that the sale will be subject to the outcome of the suits, as the DRAT in Bombay had done, the present applications could have been easily rejected. But it is not the case.
82. This is why, as I have pointed out earlier, the applicant is not seeking any relief for themselves. The applicant is merely seeking to recall the order dated 20.12.2010, so that the said order does not create an impediment on their way, in the event of their success in the two suits.
83. Therefore, to the above extent, the applicant is right in relying upon Section 52, though the applicant may not be able to seek a prohibitory order on the basis of Section 52. In other words, Section 52, which may go to the support of the applicant in the event of their success in the suits, cannot be turned into a dead letter, merely because of the order dated 20.12.2010 passed by this Court.
SECTION 44-A OF LAND ACQUISITION ACT:-
84. On the first contention, I have concluded that the company-in-liquidation cannot be said to have had no right or interest in immovable property, so as to enable them to create a charge in favour of the bank. I have arrived at this conclusion, after testing the contention of the applicant in the light of Section 7 of the Transfer of Property Act and Clause 6(d) of the agreement dated 27.6.1994. In other words, I have found no contractual restriction on the right of the applicant to mortgage the property.
85. But the next contention of the learned counsel for the applicant is that de hors the terms of the agreement or allotment, there is a prohibition under Section 44-A of the Land Acquisition Act, 1894. This is an argument that stands independently of the terms of allotment and the agreement. This argument also stands independently of the provisions of Sections 7 and 52 of the Transfer of Property Act, 1882. Therefore, irrespective of the conclusions I have reached earlier, I have to test this contention.
86. Section 44-A of the Land Acquisition Act, 1894, restricts the right of a company to transfer the land acquired for the benefit of the company, except with the previous sanction of the appropriate Government. The Central Act contains only one stipulation in Section 44-A. But by the Land Acquisition (Tamil Nadu Amendment) Act, 1996, the existing provision of the Central enactment was numbered as sub-section (1) and one more provision was inserted as sub-section (2) along with a proviso. Therefore, Section 44-A of the Act, in so far as its application to the State of Tamil Nadu is concerned, reads as follows:-
"44-A. Restriction on transfer, etc.,--
(1) No company for which any land is acquired under this Part shall be entitled to transfer the said land or any part thereof by sale, mortgage, gift, lease or otherwise except with the previous sanction of the appropriate Government.
(2) Where it is noticed or any information has been received that any land has been transferred in contravention of sub-section (1), the Government may, by order, declare the transfer to be null and void and, on such declaration, the land shall, as penalty, be forfeited to, and vest in, the Government in Revenue Department free from all encumbrances:
Provided that no order under this sub-section shall be made unless the company has had a reasonable opportunity of being heard."
87. In the Statement of Objects and Reasons, for bringing forth the Land Acquisition (Tamil Nadu Amendment) Act 1996, the State of Tamil Nadu indicated two reasons, one for inserting Section 16-B and another for inserting the second sub-section to Section 44-A. The relevant paragraphs read as follows:-
"Lands are acquired by Government on behalf of several requisitioning bodies. But, after acquisition, the requisitioning bodies transfer the lands to others without the prior permission of Government. With a view to avoid the requisitioning body from transferring the acquired lands or any part thereof by sales, mortgage, gift, etc., without the prior permission of the Government it has become necessary to make a provision in the Act. In certain cases, the requisitioning body does not use the land acquired for them. Similarly, the land is not put to use for the purposes for which it was originally acquired and they may keep the land idle for years together without utilising the land. To prohibit this tendency, it has been decided to insert a new provision as Section 16-B in the Act, so as to provide that such land may be forfeited and the land shall vest in the Government in Revenue Department."
"As per Section 44-A of the Act, no company for which any land is acquired shall be entitled to transfer the said land or any part thereof by sale, mortgage, gift, lease or otherwise except with the previous sanction of the appropriate Government. If a company resorts to illegal transactions, there is no penal provision in the Act. Such a penal provision is necessary to prevent the companies from transferring the lands illegally, without using it for the purpose for which it was acquired. The Government have, therefore, decided to amend the existing Section 44-A to the effect that the Government may, by order, declare such transfer to null and void and on such declaration the land shall, as penalty be forfeited to, and vest in the Government in Revenue Department free from all encumbrances."
88. A careful scrutiny of the original provision of Section 44-A and the Tamil Nadu Amendment to the same, would show that the original provision contains a mere prohibition and the Tamil Nadu Amendment inserted a penal provision, in the event of a violation of the prohibition.
89. Taking advantage of the insertion of the penal provision and the proviso to sub-section (2) of Section 44-A, Mr.N.R.Chandran, learned Senior Counsel for ARCIL contended that the Government had not so far declared the transfer to be null and void and that therefore, the mortgage created by the company-in-liquidation cannot be assailed merely on the basis of a general prohibition contained in sub-section (1). According to the learned Senior Counsel, sub-section (2) is merely an enabling provision, as seen from the expression "the Government may". Therefore, it is always possible for the Government, to choose not to make a declaration that the transfer is null and void, after hearing the objections of the company/allottee under the proviso. In other words, it is the contention of the learned Senior Counsel that any alienation made in violation of Section 44-A(1) does not automatically become null and void, but it would require a declaration by the Government in accordance with sub-section (2) and the proviso thereunder. Till such a declaration is made, the alienation is only voidable and hence, the learned Senior Counsel for ARCIL contended that the mortgage cannot be presumed to be invalid.
90. But I am unable to sustain the above contention, for one fundamental reason. Let us forget for a moment, the Tamil Nadu amendment to Section 44-A. Had sub-section (2) not been inserted by way of amendment, Section 44-A could have been read and understood only one way. In other words, any one reading Section 44-A, without the Tamil Nadu amendment, will easily come to the conclusion that there is a statutory prohibition for a company, for whose benefit a land is acquired by the Government, from transferring the same without the previous sanction of the appropriate Government. This statutory prohibition is clear, unambiguous and absolute. That it is so, is also independent of sub-section (2) inserted by the Tamil Nadu amendment. The Tamil Nadu amendment did not in any way dilute the effect of the statutory prohibition contained in the original provision. While considering the effect of negative, prohibitory and exclusive words in a Statute, the Supreme Court pointed out in Mannalal Khetan vs. Kedar Nath Khetan {AIR 1977 SC 536}, that "where a contract, express or implied, is expressly or by implication forbidden by Statute, no Court will lend its assistance to give it effect". The Supreme Court further pointed out that negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statutory provision imperative. Therefore, the prohibition contained in the original Section 44-A, is absolute and there is no way one can read down the prohibition.
91. But the Government of Tamil Nadu thought that Section 44-A merely contained a prohibitory tenet, without spelling out the consequences of violation of the prohibition and that therefore, an amendment to indicate the consequences should be incorporated. To put it metaphorically, the Government of Tamil Nadu thought that Section 44-A merely contained a voice to bark and not the teeth to bite. Therefore, sub-section (2) was inserted, to spell out the consequences of violation of the prohibition contained in sub-section (1).
92. The Tamil Nadu amendment to Section 44-A should be understood in the context of a similar amendment to Section 16. In both cases, the focus of the Government was to forfeit the land and to have it vested in the Government in the Revenue Department free of all encumbrances. Therefore, if the steps contemplated under sub-section (2) of Section 44-A have not been initiated or have not been taken to their logical end, the forfeiture of the land and the vesting of the same in the Government may get postponed. But the transfer would not automatically become valid.
93. The issue raised by the applicant has to be understood in the context of the events that have led to the order dated 20.12.2010 passed in C.A.Nos.1114 and 1115 of 2010, for recalling which the present applications have been taken out. In the order dated 20.12.2010, this Court permitted ARCIL to proceed with the sale of the property. Therefore, it is possible for a third party purchaser to come and contend at a later point of time, that this Court has tacitly approved the transfer (creation of mortgage) by the company-in-liquidation, though it was in violation of Section 44-A(1) of the Act. This would virtually close the door for the Government to proceed with the action that they have already initiated under sub-section (2) of Section 44-A.
94. This is not a case where an innocent third party had bona fide taken a transfer, in violation of Section 44-A. ARCIL appears to have obtained assignment of the debts due from the company-in-liquidation from ICICI Bank, for a value of more than Rs.100 crores. The debts due to ICICI Bank was almost about 3 times more than the said value. Therefore, ICICI Bank, while accepting a mortgage of the property in question from the company-in-liquidation, should have insisted upon the company getting the previous sanction of the Government in terms of Section 44-A. Their failure to ask for the previous sanction of the Government is very serious, especially since the land in question was acquired under Part-VII and hence there were no title deeds in favour of the company, with which they could have created an equitable mortgage. As I have pointed out elsewhere, the company-in-liquidation availed credit facilities from ICICI Bank and entered into 2 loan agreements on 28.12.1995 and 2.2.1996. But the applicant herein filed 2 civil suits on 29.1.1996 and 1.2.1996. In the applications for various types of interim orders sought by the applicant herein, a learned Judge of this Court passed an order on 2.7.1996. It was only thereafter that the company-in-liquidation appears to have signed the Memorandum of Deposit of Title Deeds on 22.7.1996. Therefore, the very creation of the mortgage was in violation of the order of this Court.
95. I am prepared to give and I have actually given the benefit of interpretation of the terms of allotment and the agreement dated 27.6.1994, by holding that there was no express prohibition either under the allotment or under the agreement, in respect of alienation or transfer. In other words, I have not found fault with the mortgagee, for understanding the letter of allotment dated 22.6.1994 and the agreement dated 27.6.1994 in a manner as though the allottee was lawfully entitled to create a mortgage.
96. But I cannot give such a benefit to the mortgagee, in so far as Section 44-A is concerned. As I have pointed out earlier, the Tamil Nadu Amendment Act merely spells out the consequences that would fall upon the company which transferred the land in violation of the prohibition under Section 44-A. It did not in any way dilute the prohibition contained in Section 44-A.
97. As a matter of fact, the Tamil Nadu Amendment Act provides two consequences for the violation of the prohibition under Section 44-A. One consequence is for the transferor viz., the company for whose benefit the land was originally acquired. The second consequence is for the transferee, who obtained the transfer in violation of the prohibition. If Section 44-A had not been amended, the transferor viz., the company for whose benefit the land was acquired, would not have suffered any consequence. The transfer alone would have become invalid in view of the prohibition and the company would have continued to retain the property, if Section 44-A had not been amended. The insertion of sub-section (2) by Tamil Nadu amendment, was not merely to set aside the transfer and punish the transferee, but also to deprive the transferor of the very benefit of acquisition.
98. If the Tamil Nadu amendment is viewed in such perspective, it will be clear that the prohibition contained in Section 44-A(1) is absolute and that any person who is a beneficiary of such a transfer, cannot seek a seal of approval from this Court to sell such a property, whose transfer to itself was in violation of statutory prescription. As I have pointed out earlier, the order of this Court dated 20.12.2010, if allowed to stand, would flush out the effect of the statutory prohibition. This is why, the applicant seeks to recall the said order and hence, I hold that the transfer by way of mortgage, created by the company-in-liquidation in favour of the Bank, is invalid in view of the statutory prohibition.
ORDER OF THE BOMBAY HIGH COURT
99. The next contention of the learned counsel for the applicant is that there is an order of stay granted by the Division Bench of the Bombay High Court and that therefore, ARCIL cannot proceed with the sale. In order to understand the scope of this objection, it is necessary to get back to the facts once again.
100. As pointed out in the narration of facts, ICICI Bank filed O.A.No.9 of 2003 on the file of the Debts Recovery Tribunal, Bombay for recovery of about Rs.289 crores, against the company-in-liquidation. Pending the main application, the Bank sought the appointment of a Receiver to take possession and to sell the properties. The Debts Recovery Tribunal-III, Mumbai allowed the interim prayer and appointed a Receiver for taking possession and for selling the properties, by an order dated 14.2.2003.
101. As against the said order, one appeal was filed by SPIC, in M.A.No.79 of 2003 and another appeal was filed by company-in-liquidation in M.A.No.75 of 2003, on the file of the Debts Recovery Appellate Tribunal. The Appellate Tribunal dismissed both the appeals, by a common order dated 10.3.2003.
102. As against the order of the Appellate Tribunal, two writ petitions were filed in W.P.Nos.1077 and 1078 of 2003, respectively by SPIC and the company-in-liquidation, on the file of the High Court of Bombay. When the writ petitions were taken up for hearing by a Division Bench of the Bombay High Court, the company-in-liquidation as well as its promoter SPIC, appear to have informed the Court that there are possibilities for revival of the company and that they would place necessary technical report to the said effect. Due to the said enticement, the Division Bench of the Bombay High Court passed an order on 17.4.2003, not to dispossess the company from the property and not to sell the property, as per the orders of the DRT. The said order prohibiting the sale of the property is stated to be in force even till date. Therefore, the applicant contends that the order dated 20.12.2010 permitting the sale of the property by ARCIL, was contrary to the order of the Division Bench of the Bombay High Court.
103. But I do not think that the applicant can rely upon the order of the Division Bench of the Bombay High Court anymore, in view of the fact that much water has now flown under the bridge. At the time when the said order was passed on 17.4.2003, the learned Official Liquidator was not in the picture. The company-in-liquidation was ordered to be wound up, by an order dated 17.4.2009. The winding up order was challenged in OSA Nos.127 to 132 of 2009 and the Division Bench granted a stay of the order of winding up, subject to certain conditions. Eventually, the stay was vacated by an order dated 26.4.2010. Therefore, today it is the Official Liquidator who is representing the company which is the petitioner before the High Court of Bombay in the writ petition in which a stay of sale was granted. The Official Liquidator, who is now representing the company, has given consent for the sale and hence, the stay order of the Bombay High Court cannot be pressed into service in view of the changed circumstances.
104. Moreover, the High Court of Bombay granted stay of sale, only in pursuance of the order of the Debts Recovery Tribunal. It is not a blanket order of stay for all times to come. Today the sale is not intended to be made in pursuance of the order of the Debts Recovery Tribunal, Bombay. What was stayed by the Division Bench of the Bombay High Court, was only a stay of sale in pursuance of the order of the Debts Recovery Tribunal.
105. Additionally, the order dated 17.4.2003 passed by the Bombay High Court, staying the sale, was with a view to explore the possibility of revival of the company. But after 6 years of the said order, the company was ordered to be wound up and the winding up order has now become final. Therefore, the whole scenario has now changed. Today the company-in-liquidation cannot even pursue the writ petition before the Bombay High Court, since the Official Liquidator has now taken over charge. Therefore, the applicant cannot rely upon the order dated 17.4.2003 of the Bombay High Court.
DISTRAINT ORDER OF COLLECTOR
106. The applicant next relies upon the distraint order issued by the District Collector on 12.1.2010, for non-payment of the share of rehabilitation cost, by the company-in-liquidation and contends that the property cannot be sold in the light of such a distraint order.
107. But it appears that the distraint order issued by the Collector under the Tamil Nadu Revenue Recovery Act, 1864, was stayed by a learned Judge of this Court on 18.2.2010 in M.P.No.1 of 2010 in W.P.No.3293 of 2010. However, it was subject to the condition that the company-in-liquidation paid 30% of the amount indicated in the distraint order, within 8 weeks. I do not think that the company-in-liquidation had paid the said amount. At the time when the company-in-liquidation filed the writ petition and obtained a stay of the distraint order, the order of winding up passed by this Court on 17.4.2009 was under stay in a batch of original side appeals. But the stay of the order of winding up was vacated on 26.4.2010. The history of the company-in-liquidation shows that they had never complied with any conditional order of stay. Therefore, the stay of the distraint order may not really be in force today, for the failure of the company-in-liquidation to deposit the amount.
108. In any case, the distraint order is not of great consequence, since the effect of the same is only to keep the property in attachment, for recovery of the amount as an arrear of land revenue. Therefore, if the property is sold, the amount indicated in the distraint order can always be recovered from the sale proceeds. Therefore, I do not consider the distraint order to be a great impediment.
109. Drawing my attention to the Statements of Claim made by the applicant periodically for payment of the rehabilitation expenses, staff cost etc., Mr. N.R.Chandran, learned Senior Counsel appearing for ARCIL contended that at the most, the claim that the applicant has is a monetary claim, that could, on the highest side could be quantified at about Rs.40 crores. Therefore, the learned Senior Counsel contended that the applicant cannot stall the sale. According to the learned Senior Counsel for ARCIL, it would be in their own interest for the applicant to allow the sale to take place and then stake a claim for the rehabilitation expenses etc., from out of the sale proceeds.
110. But the above contention overlooks two important aspects viz., (i) that the Government have, today, exhibited an intention to resume the land and (ii) that the element of public interest, which formed the foundation for the acquisition of land under Part-VII, has been shattered to pieces, due to the turn of events.
111. The Government had already issued a notice for resumption of the land on 29.7.2009 in terms of Clause 6(d) of the agreement dated 27.6.1994. The company-in-liquidation had also submitted a reply to the show cause notice on 20.8.2009. Again the Government had issued a show cause notice dated 14.6.2013 under Section 44-A of the Land Acquisition Act, 1894. Therefore, I cannot simply reject the present applications on the ground that the claim of the applicant is only for payment of money.
112. As stated earlier, I must also take note of public interest. An acquisition under Part-VII, invoking the emergency provisions, is more draconian than an acquisition under Part-II. The acquisition was not of a few acres of land for a small industrial enterprise. The acquisition was of the land of an extent of more than about 1655 acres, made by the Government by invoking the emergency clause, way back in 1992. Within 2 years, Southern Petrochemical Industries Corporation Limited, which joined hands with the applicant herein for putting up a Joint Venture Project, chose to go its own way by forming the company-in-liquidation and getting about 168 acres of land diverted to them. This triggered a litigation in 1996 and before the litigation could come to its logical end, the Joint Venture got aborted and the surrogate child, viz., the company-in-liquidation got wound up. Therefore, the invocation of the emergency clause and the acquisition of land of such a huge magnitude, have been rendered exercises in futility. Hundreds of acres of land, acquired hurriedly by the State of Tamil Nadu from thousands of families, for the professed object of industrial development and economic growth, were eventually mortgaged with the financial institutions, without an industry coming up thereon and the financial institution is before this Court for an auction sale of such a land, to realise its dues from the company-in-liquidation. People, who had small extents of land in their private ownership, lost their right, title and even sentimental attachment to the lands, on the specious plea that a huge industry was going to come up. When those small men challenged the acquisition proceedings before this Court, the doctrine of public interest coloured the vision of this Court and the acquisition was upheld. But today, the industry for which acquisition was made, has not come up. Since the company is wound up, it cannot also come up hereafter. This is why the Division Bench ordered an investigation by the CBI, into the whole gamut of allotment of land. Though the order of the Division Bench is of the year 1997, I do not know what was its outcome. Therefore, in such circumstances, it is hard for this Court to give a nod for the sale of the property by the secured creditor. The recalling of the order dated 20.12.2010, in a way, will be an atonement by this Court, for upholding the acquisition made 20 years ago, for the benefit of unscrupulous elements.
113. Therefore, the applications C.A.Nos.163 and 164 of 2011 are allowed and the order dated 20.12.2010 passed in C.A.Nos.1114 and 1115 of 2010 are recalled. The other application C.A.No.165 of 2011 is closed, since the prayer therein is only for a stay pending disposal of the other two applications. There will be no order as to costs.
12-09-2013 Index : Yes. Internet : Yes. Svn V. RAMASUBRAMANIAN, J. Svn Common order in Comp.A.Nos.163 to 165 of 2011 12-09-2013