C.P. No.51 of 2006 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH C.P. No.51 of 2006 (O&M) Date of decision: 19.03.2009 2. C.A. No.740 of 2007 3. C.A. No.400 of 2008 in C.A. No.740 of 2007 4. C.A. No.521-522 of 2008 5. C.A. No.454 of 2008 In the matter of M/s Dabriwala Steels and Engineering Company Limited (in liqn) Shri Kundanmal Dabriwala and others ...............Petitioners Versus M/s Dabriwala Steels and Engineering Company Limited (in liqn) and others ............Respondents 6. C.A. No.482 of 2006 in C.P. No.296 of 2006 M/s Dabriwala Steel & Engineering Company Limited (in liqn) through Official Liquidator ............Petitioner Versus Haryana Financial Corporation and others ............Respondents Present: Mr. Anand Chhibbar, Advocate and Mr. Ranjit Chawla, Advocate and Mr. Rakesh Kumar, Adv for the petitioner. Ms. Sangeeta Dhanda, Advocate for HSEB. Mr. Chetan Mittal, Sr. Advocate with Mr. Deepak Suri, Advocate and Mr. Gaurav Kathuria, Advocate for Auction Purchaser. Mr. R.K. Battas, Advocate and Mr. S.K. Batish, Advocate for M/s Saket Steels Ltd. Mr. Kamal Sehgal, Advocate and Mr. H.R. Bhardwaj, Advocate for HSIIDC. Mr. Neeraj Khanna, Advocate for Official Liquidator. Mr. B.B. Bagga, Advocate for SBI. Mr. Puneet Gupta, Advocate and Mr. Aalok Jain, Advocate for HFC. C.P. No.51 of 2006 (O&M) -2- CORAM: HON'BLE MR. JUSTICE K. KANNAN 1. Whether Reporters of local papers may be allowed to see the judgment ? Yes 2. To be referred to the Reporters or not ? Yes 3. Whether the judgment should be reported in the Digest? Yes -.- K.KANNAN, J. I. Petition for revival and the principal objectors: 1. The company which was ordered to be wound up in Company Petition No.31 of 1995 is sought to be revived through the Company Petition No.51 of 2006, at the instance of the petitioners No.1 to 6, who claim to be the major equity shareholders of the company. Petitioner No.7, Sh. Sanjay Gulati is represented to be the financier/co-promoter to revive the company. The petition is resisted by several persons and principally by the Official Liquidator, who has moved an application for confirmation of sale of the only remaining items of property namely industrial shed in Plot No.142, Sector 24, Faridabad. M/s Saket Steels Limited has obtained a decree in respect of the very same property for specific performance in a civil suit bearing No.66 of 1990 and they have sought for execution of the decree before this Court. Haryana State Electricity Board is another principal contender against the proposals for revival on the ground that money claims arising out of same proceedings still remain unsatisfied and the petition for revival cannot be allowed. M/s Freshness Coatings (P) Ltd., which has been the successful bidder and whose sale is sought for confirmation by the Official Liquidator would oppose the petition on the ground that the sale of the property which is being made for favour of Rs.4.10 crores is now sought to be C.P. No.51 of 2006 (O&M) -3- undone at the instance of another person who is 7th petitioner and it is only a ploy to sell the property to another person and there is no scope for revival of the company itself especially after the plant and machinery of the company which existed at Industrial Shed, Plot No.136, Sector 24, Faridabad had already been sold and the revival is sought at the time when only a vacant land in industrial shed, Plot No.142, Sector 24, Faridabad remains undisposed of. The claims and counter-claims emanating from the claims have to be understood in the factual context of how the proceedings are started and how the case has journeyed through all these years till when the last item of property was sold and awaited confirmation and when the petition for revival of the company has been made at the instance of the ex- directors of the Company. II. Factual background: 2. M/s Dabriwala Steel and Engineering Company Limited (hereinafter called as DSECL) had been incorporated in the State of West Bengal in 1970 and subsequently the registered office of the company was shifted to Faridabad to set up a mini-steel plant at Plot No.136, Sector 24, Faridabad being unit No.1. The company had another unit at plot No.142, Sector 24, Faridabad being unit No.2. The company started its commercial production in the year 1972-73 but failed due to severe financial constraints. The factory was closed on 27.04.1985 and the company approached the BIFR for rehabilitation under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The reference was registered and after hearing IRBI was appointed as an operating agency. The initial parleys for C.P. No.51 of 2006 (O&M) -4- rehabilitation did not work and ultimately the BIFR recommended for winding up of the company on the ground that the company had become economically and commercially non-viable. The company resisted the direction for winding up by preferring an appeal under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) filed a writ petition before the High Court and all their attempts to stall the winding up failed. The High Court passed the winding up order in C.P. No.31 of 1995 on 24.02.1995 and the Official Liquidator attached to the Court was appointed as the Liquidator for DSECL. 3. Consequent upon the order issued by the Court, the Official Liquidator took possession of the factory premises at Unit No.1 and 2. The Haryana State Financial Corporation, respondent No.3 being one of the secured creditors at the bidding of the High Court sold all the movable and immovable assets lying at Plot No.136 for a total sale consideration of Rs.4.10 crores and this Court confirmed the sale on 17.09.2004 in favour of M/s Excel Buildcon Private Limited. The State Bank of India-respondent No.2 was a secured creditor in respect of other assets of the company bearing Plot No.142, Sector 24 and was interested in expediting the process to pay to itself the debts owed by DSECL from it. The State Bank of India had also a second charge over the assets of the factory premises in Plot No.136, Sector 24 and after a meeting which the Official Liquidator held, the property in Plot No.142, Sector 24, Faridabad was taken possession of and obtained permission of the Court, vide its order dated 09.02.2006, for sale of the property in Plot No.142 in association with the secured creditors by giving wide publicity. C.P. No.51 of 2006 (O&M) -5- III. Simultaneous efforts by the Ex-Directors to settle claims by OTS: 4. Simultaneously with the efforts of the Official Liquidator to dispose of the property in Plot No.142, the Ex-Directors and majority shareholders of the company had initiated for a One Time Settlement with the State Bank of India and Haryana Financial Corporation, as well as settling the claims of the workers. The dues as claimed by the third respondent were paid by the Directors with reservations to challenge the correctness of the demand. The 4th respondent-HSIDC obtained an OTS to be paid its claim to the tune of Rs.4,99,500. The claims that remained unsatisfied were the claims of the Haryana State Electricity Board and the decree-holder in a suit for specific performance in relation to the very same property. The objections of the Official Liquidator supporting the claim of the purchaser M/s Freshness Coating (P) Limited also survived. IV. The proffered scheme of revival: 5. The revival, as worked out by the Directors, has been enumerated in the petition, principally setting out the following facts:- (a) The price of the industrial plot which was sold has increased manifold since the date of winding up of the company in 1995 and the circumstance that existed at the time when the company had moved under BIFR when the liabilities of the company had far out-stripped the assets had changed by the considerable increase in valuation of the immoveable assets of the company. (b) On a proper reckoning of all the debts due by the C.P. No.51 of 2006 (O&M) -6- company if the claims of creditors had to be reviewed on One Time Settlement basis, it was possible to liquidate all the debts and still save the valuable assets of the company from being sold. (c) The petitioner No.7, a financier and co-promotor was willing to fund the company-in-liquidation and its liabilities and the creditors who were only looking for repayment of the debts had expressed willingness for the respective offers of OTS, which was beneficial to the company. (d) The promoters of Dabriwala had long standing relations with Sanjiv Gulati, the Managing Director of Gulati Industrial Fabrication Private Limited having its industrial shed at Plot No.262-M, Sector- 24, Faridabad which was near to Plot No.142 and they were willing to assist the company to make upfront payments to all the creditors by following the OTS policies floated by public financial institutions. (e) As a necessary quid pro quo the Ex-Directors of the company were willing to cede major shareholding with Mr. Sanjay Gulati who had agreed to revive DSECL by establishing steel and forging unit on the same plot. Elaborate formulations of the shareholding pattern have also been detailed in the petition for revival under the Mr. Sanjay Gulati, who was to be made the Managing Director. Over 85% of the equity C.P. No.51 of 2006 (O&M) -7- shareholdings were to be held with Mr. Sanjay Gulati and 15% of the equity shareholding to be retained by Mr. K.K. Dabriwala on behalf of the existing shareholders of the DSECL. V. The financial reckoning and the basis of objections for revival: HFC’s woes 6. The objections to the revival of the company have gone through several quarters. The Official Liquidator himself has filed a report giving out the details of the amounts available in the account of the company in liquidation as Rs.75,37,054/- including their FDRs on 31.03.2008 and setting out the provision for expenses to the tune of Rs.10,21,740/-. The amount in deposit included Rs.25,00,000/- deposited by M/s Freshness Coatings (P) Ltd. for the purchase of property of the company situate at Plot No.142, Sector-24 and in respect to which confirmation was awaited through the application, C.A. No.296 of 2006. The valuation fee and professional fee of Chartered Accountant were also to be paid for which the application had been moved in C.A. No.172-173 of 2008. The objection of Haryana Financial Corporation is to the effect that the demands that had been directed to be made to the State Bank of India had been made in C.A. No.740 of 2007 without even affording a notice to the secured creditors having first charge over the property bearing Plot No.136, Sector 24, Faridabad and in respect of which the State Bank of India was only a second charge holder. However, the State Bank of India had been paid not merely an amount due by the company-in- liquidation but also a debt due by M/s Jai Hind Investment and C.P. No.51 of 2006 (O&M) -8- Industries Ltd. The adjustment of dues by M/s Jai Hind Investment and Industries Ltd. was impermissible. The dues to HFC itself are Rs.85,57,600/- with further interest w.e.f. 01.10.2007. Freshness Coating’s objection 7. M/s Freshness Coatings (P) Ltd., which had been declared the highest bidder of the auction also opposed the sanction for revival on the ground that the scheme did not spell out any particular method of reviving the company affairs but it was only a ploy to defeat its interest and dispose of the property by private negotiations to another person. The objection comes through the fact that the plant and machinery situate in plot No.136, Sector 24, Faridabad had already been sold for Rs.4.10 crores by Official Liquidator and what remained was only Plot No.142, Sector 24, Faridabad which it had purchased. There was no more industrial activity in Plot No.142, Sector 24 to revive the company. It is also objected by the purchaser that none of the provisions contained under Sections 391, 392 and 394 have been followed for taking action for revival of the company. The application filed by the Ex-Directors suffers from not following the pre-requisites laid down under the Companies Act under the relevant provisions which could not be treated as empty formalities to be thrown to winds at its whims. Electricity Board’s objections 8. The Dakshin Haryana Bijli Vitran Nigam Limited (hereinafter referred to as "Electricity Board") has its objections in the shape of claims against the company-in-liquidation which, according to it, has been wrongly adjudicated by the Official Liquidator. The C.P. No.51 of 2006 (O&M) -9- complaint of Electricity Board is that the company did not pay the energy charges regularly with the result that huge arrears worth several lacs of rupees had accumulated that resulted in an adjudication before an Arbitrator. The Award of the sole Arbitrator was passed on 02.03.1987 granting relief of demand charges assessed at Rs.10.4 lacs and a net penalty of Rs.6.4 lacs but after deduction of the claim by the company for a sum of Rs.6.4 lacs, a net amount of Rs.4 lacs alone awarded in favour of the Electricity Board. It was not satisfied with the Award passed by the Arbitrator for the fact that the Arbitrator had purportedly acted beyond his jurisdiction and waived off energy charges from November, 1979 to 02.03.1987, which was not within the ambit of the reference before the Arbitrator. According to the Electricity Board, the amount recoverable from the company was to the tune of Rs.42,43,621/- and the reduction of the amount to Rs.4 lacs was on account of non-application of cogent mind and reasonable basis. This Award had been challenged before the Senior Sub Judge, Faridabad by petition dated 31.03.1987 and the Award of the Arbitrator had also been upheld. The order passed by the Additional District Judge which accepted the claim of the Electricity Board to the tune of Rs.10.4 lacs was however not accepted by the Official Liquidaor in view of the fact that leave of the High Court had not been obtained for pursuing the remedy before the Additional District Judge. The Electricity Board had, therefore, filed their complete claims before the Official Liquidator for adjudication. The Official Liquidator had submitted a report on 08.04.2008 which only upheld the claim as awarded by the Arbitrator and accepted the claim to the C.P. No.51 of 2006 (O&M) -10- tune of Rs.6.61 lacs against the claim of Rs.85,20,844/-. This order of the Official Liquidator is also challenged by the Electricity Board and the Electricity Board now has sought for including the claim for energy charges. According to the Electricity Board neither the Arbitrator nor the Court which dealt with it had the power to decide against energy charges because it had been kept out of arbitral reference but the Official Liquidator was bound to see whether outstanding claim of Electricity Board for Rs.35,63,685/- had been paid or not. The waiver awarded by the Arbitrator in relation to the energy charges and electricity duty was without jurisdiction and the Official Liquidator ought to have considered the said claim in its proper perspective. The response of the Ex-Directors of the Company to the claim of the Electricity Board is that there was no default in the payment of the energy charges and hence, no amount as claimed by the Electricity Board was payable. Further the Award of the Arbitrator itself has become a rule of the Court and therefore, it was not possible for the Electricity Board to set up its claim for any amount more than that what was adjudicated. M/s Saket Steels’ decretal claims 9. M/s Saket Steels Limited had acquired a decree in a suit for specific performance against the company-in-liquidation before the Additional Civil Judge (Sr. Divn), Faridabad on 19.04.1996. It was an ex parte decree arbitrarily passed the order of liquidation which was made on 24.12.1985. The contention on behalf of the decree-holder is that facts of the matter before the Company Court had themselves not been apprised to the Civil Court before the passing of the decree. The C.P. No.51 of 2006 (O&M) -11- decree is not illegal or void but at best voidable at the instance of the company and the same having not been set aside, the decree-holder was entitled to have the decree directed to be executed before the Company Court. Taking notice of the fact that the property had been directed to be sold in liquidation, permission was being sought for levying execution against the company in liquidation. This petition had been filed on 06.07.2006 before the Company Court. VI. DESCL's response to objections: 10. The parties have submitted authorities for various issues touching upon the dispute between the parties. The learned counsel appearing for the applicants seeking for revival contends that since all the claims of the creditors have been fully satisfied except the claims of the Electricity Board and HFC, there cannot be any obstruction at the instance of any person for approving the proposal made by the applicants. The learned counsel concedes that he will make any amount that may be determined by the Court as payable by the company to them. There is no need for following any formulations as detailed under Section 391, 393 and 394 in view of the fact that the special procedure is only to apprise the claims of the shareholders and creditors and since all the shareholders have jointly proposed the scheme for revival and since all the major creditors including workers in the company have already been satisfied, the only creditors who remained were the Electricity Board and the HFC and their objections being also heard before the Court, there was no scope for following any procedure laid down under Sections 391, 393 and 394 of the Companies Act. C.P. No.51 of 2006 (O&M) -12- 11. Elaborate arguments have been made and decisions submitted by the learned counsel essentially on the need to secure the permission of the Company Court for prosecuting any action before any Civil Court. His objections come through Section 446 of the Companies Act which interdicts the commencement of any suit or other legal proceedings if a winding up order has already been passed, except with the leave of the Court. He also points out to the fact that the company had approached the BIFR at the relevant time when the suit for specific performance had been filed and the continuance of the proceedings before the Civil Court and the issuance of a decree in violation of statutory provisions contained under SICA are void ab initio. He refers to a decision M.V. Janardhan Reddy Vs. Vijaya Bank and another 2008(144) Comp Cas 1 (SC) that "since the Official Liquidator was in charge of the assets of the company, he ought to have been associated with the auction proceedings, which was not done". This was stated in the context of the power of the Recovery Officer under the RDB Act. In confirming the sale, the Recovery Officer was acting beyond his own powers. Harihar Nath & Ors Vs. State Bank of India & Ors JT 2006 (4) SC 241 states the effect of Section 22 of SICA and Section 446 of the Companies Act is that an order of winding up casts a duty or obligation on the person who has sued the company to obtain the leave of the court to proceed with his suit. The right to apply for leave accrues not because of the order of winding up but because the suit or proceeding is stayed; so long as the suit or proceeding remains stayed an application for leave can always be filed. The Hon'ble Supreme Court was setting out the C.P. No.51 of 2006 (O&M) -13- law in the context of law of limitation for seeking the leave and held that the right to apply for grant of leave under Section 446(1) accrued every moment the suit remained stayed. According to it, the decree by the Civil Court granting specific performance had been made when the suit remained stayed by virtue of operation of Section 22 of the SICA and when an order of winding up had been passed by the Company Court, sanction ought not to have been obtained before a decree was rendered. It must be remembered that Hon'ble Supreme Court itself has said in the judgment that the objective of Section 446 of the Act was not to cancel or nullify or obtain any claim against the company but merely to protect unnecessary litigation and from multiplicity of proceedings and to further protect the assets for equal distributions amongst the creditors and shareholders. This object was achieved by compelling a creditor or person having a claim against a company to approach the Court for obtaining necessary orders. 12. Raghunath Rai Bareja and another Vs. Punjab National Bank and others (2007) 135 Comp Cas 163 (SC) was a case where the Hon'ble Court dealt with a situation when a decree had become time barred and the Court was found not to have jurisdiction to transfer a claim by a Bank to DRT for enforcement under the RDB Act even if equity existed in favour of a Bank to realise its dues and the bank had itself to blame in filing its execution petition beyond the period of limitation. Chandra Kishore Jha Vs. Mahavir Prasad JT 1999(7) SC 256 refers to a general proposition that when a statute provides a thing to be done in particular manner then it has to be done in that manner and in no other manner. The learned counsel refers to C.P. No.51 of 2006 (O&M) -14- this proposition to drive home his point that the plaintiff who was pursuing his remedy for specific performance ought to have applied under Section 446 to pursue his claims and if he had not done, the decree itself cannot be said to be validly obtained. Sudarsan Chits (I) Ltd. Vs. G. Sukmaran Pillai (1984) 3 Comp LJ 40 (SC) examines the scope ambit in the legislative history of Section 446 (2). The decision was rendered to explain the effect of keeping the winding up order in abeyance without anything more. It held that all directions as contemplated under Section 446(2) could be given although winding up of the company is kept in abeyance by the orders of the Court. In Smt. Bhagwati Devi Bubna and others Vs. Dhanraj Mills Private Ltd. and others AIR 1969 Patna 206, a Division Bench of the Patna High Court examined the effect of Section 537 of the Companies Act to mean that a decree cannot be executed against the effects of the properties of the company in liquidation without leave of the Court and if a suit is continued without leave of the Court under the said Section, the decree is not binding on the Official Liquidator. The Division Bench observed that the matter has to be taken only to the winding up Court for further action and an observation was made by the Executing Court regarding the nature of decree or its executability should be taken as having no effect. Loil Continental Foods Ltd. Vs. Punjab Wireless Systems Ltd. (in liqn) and others (2008) 143 Comp Cas 619, a learned Judge of this Court examined at length the purported applicability of Section 446 of the Companies Act vis-a-vis the various special statutes making provisions for recovery of debts. It held that even an order of attachment made by a Court during the C.P. No.51 of 2006 (O&M) -15- subsistence of proceedings before the Company Court without leave of the Court would be considered as against the terms of the mandate of Section 537 and as such void and does not exist in the eye of law. Kerala State Financial Enterprises Ltd. Vs. Official Liquidator, High Court of Kerala JT 2006 (12) SC 603 examined the over-riding effect of SICA where the company, which was engaged in financial activities, was proceeded with under the State Financial Corporations Act and under Kerala Revenue Recovery Act and in the meanwhile, the company had gone for voluntary