COMA/28020/2004 1/64 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION No. 280 of 2004 With COMPANY APPLICATION No. 312 of 2004 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= STATE BANK OF INDIA - Applicant(s) Versus O.L.OF NEW GUJARAT SYNTHETICS LTD. & 12 - Respondent(s) ========================================================= Appearance : (1) Company Application No 280 of 2004 MR RM DESAI for Applicant(s) : 1, OFFICIAL LIQUIDATOR for Respondent(s) : 1, MS AMEE YAJNIK for Respondent(s) : 1, NOTICE UNSERVED for Respondent(s) : 2, MR DS VASAVADA for Respondent(s) : 3, NANAVATI ASSOCIATES for Respondent(s) : 4, MR NITIN K MEHTA for Respondent(s) : 5 – 13. (2) Company Application No 312 of 2004 MR DS VASAVADA for Applicant ========================================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 5/12/2008 COMA/28020/2004 2/64 JUDGMENT CAV JUDGMENT 1. The applicant, State Bank of India, has taken out this Judge's Summons making following prayers; (A) The Liquidator of New Gujarat Synthetics Ltd. (In Liqu.), be directed to take possession of piece or parcel of land situate, lying and being at Mouje Dariapur Kazipur, City Taluka, bearing Final Plot No. 31 (Original Survey No. 416) of Town Planning Scheme No. 5 Ahmedabad admeasuring 12828 sq. yds. equivalent to 11501 sq. mts. together with constructions thereon which is in unauthorised and illegal occupation and possession of Respondent Nos. 4 to 13. (B) It may be declared that Respondent Nos. 4 to 13 are in unauthorised and illegal occupation of land situate, lying and being at Mouje Dariapur Kazipur, City Taluka, bearing Final Plot No. 31 (Original Survey No. 416) of Town Planning Scheme No.5 Ahmedabad admeasuring 12818 sq. yds. equivalent to 11501 sq. mts. together with construction standing thereon. (C) It may be declared that Respondent No. 4 to 13 are encroachers and trespassers on the land situate lying and being at Mouje Dariapur Kazipur, City Taluka, bearing Final Plot No. 31 (Original Survey No. 416) of Town Planning COMA/28020/2004 3/64 JUDGMENT Scheme No. 5 Ahmedabad admeasuring 12828 sq. yds. equivalent to 11501 sq. mts. Together with construction thereon and are liable to be evicted therefrom. (D) It may be declared that the Respondent Nos. 4 to 13 have no right, title or interest to occupy the premises situate, lying and being at Mouje Dariapur Kazipur,City Taluka, bearing Final Plot No. 31 (Original Survey No. 416) of Town Planning Scheme No. 5 Ahmedabad admeasuring 12828 sq. yds. equivalent 11501 sq. mts. together with construction thereon. (E) Respondent Nos. 4 to 13 be called upon to establish their title and interest if any to the said land situate, lying and being at Mouje Dariapur Kazipur, City Taluka, bearing Final Plot No. 31 (Original Survey No. 416) of Town Planning Scheme No.5 Ahmedabad admeasuring 12828 sq. yds. equivalent 11501 sq. mts. Together with construction thereon. More or less similar prayers are made by the applicant of Company Application No.312 of 2004 and hence narration of facts and entire discussion is confining to Company Application No.280 of 2004. COMA/28020/2004 4/64 JUDGMENT 2. This Court has issued notice on 23.8.2004 directing the respondents No.4 to 13 to produce relevant documents establishing their legal title over the properties. The Official Liquidator was also directed to make proper and complete inquiry in the matter with regard to the issue raised by the applicant Bank in the present application and submit his detailed and exhaustive report on the record of this case. During the pendency of this application, several affidavits and counter affidavits were file and alongwith which voluminous documents were filed by the parties. The Court has called for the records and proceedings of H.R.P. Suit No.243 of 1994 and Execution Petition No.172 of 1994. The Court has further called for the records and proceedings of H.R.P.Suit No.152 of 1991. 3. The brief facts giving rise to the present application are that, New Gujarat Synthetics COMA/28020/2004 5/64 JUDGMENT Ltd., (hereinafter referred to as 'NGSL' for short) was a company incorporated and registered under Companies Act, 1956. By Indenture made on 29.4.1972 and registered with the Sub Registrar of Assurances under Serial No.5701 on 29.4.1972, one Company, namely, New Asarava Manufacturing Co. Ltd., transferred its leasehold interest for Rs.7 lacs being full purchase price of leasehold land, situated, lying and being at Mouje Dariapur Kazipur, City Taluka bearing Survey No.34 Hissa No.A/1, Survey No.20/1 bearing Survey No.33 and Plot No.423 of Survey No.29 and Survey No.419 together with the factory building and other structures on the said land for absolute use for the remaining unexpired term of the demise created by the Indenture of lease recited in the said Indenture subject to the payment of rent, performance and observance of all the covenants, conditions and stipulations contained in the respective lease deed COMA/28020/2004 6/64 JUDGMENT recited in the said Indenture. Pursuant to the said Indenture, leasehold interest in respect of several piece and parcel of the land mentioned in the said Indenture including the land bearing Survey No.416 vested in NGSL. The present application is more or less confining to the land bearing Survey No.416 only which is now Final Plot No.31 of Town Planning Scheme No.5 of Dariapur Kazipur, Ahmedabad and as such reference to other survey numbers in details is not necessary. 4. The applicant, State Bank of India, had sanctioned and granted financial assistance by way of several credit facilities to NGSL. Terms and conditions stipulated by the applicant Bank for sanction and grant of several credit facilities by way of financial assistance were that the amount due under respective financial assistance will inter alia be secured by mortgage of the lands COMA/28020/2004 7/64 JUDGMENT bearing Survey No.34/1, 20/1, 33 and 416 situated, lying and being at Mouje Dariapur Kazipur, City Taluka, Ahmedabad. 5. By Memorandum dated 19.1.1983 and registered with the Sub Registrar of Assurances Ahmedabad under Serial No.12253 on 18.7.1987, NGSL by way of extension of equitable mortgage by deposit of title deeds by constructive delivery of the deeds and documents relating to leasehold piece of lands together with the building and other structure thereon created security on the immovable property to secure the amount due and payable by the Company in liquidation to the applicant Bank. As recorded in the said Memorandum though oral assent and consent was given on 18.1.1982 to hold and retain title deeds deposited on 13.10.1982 due to provision of the Urban Land (Ceiling & Regulation) Act, 1976 being applicable, permission was required for creating the COMA/28020/2004 8/64 JUDGMENT mortgage and Memorandum though executed on 19.1.1983 was registered by the Sub Registrar of Assurances on 19.7.1987 after the Additional Collector granted permission under the provisions of the Urban Land (Ceiling & Regulation) Act, 1976. The land bearing Survey No.416 was mortgaged to the applicant Bank as security for repayment and discharge of the sum of Rs.12,28,19,000/- together with interest thereon. 6. The NGSL was sanctioned additional financial assistance and to secure the said additional financial assistance to the extent of Rs.2,75,00,000/- it was declared by the Company on 18.6.1985 that the title deeds listed in first schedule to the Memorandum of extension of equitable mortgage were deposited by constructive delivery as security. Particulars of charge by creation of mortgage were filed with the Registrar of Companies, Gujarat and the charge by way of COMA/28020/2004 9/64 JUDGMENT mortgage in respect of the land bearing Survey No.416 was registered with the Registrar of Companies, Gujarat. 7. It appears from the record that several winding up petitions were filed against NGSL for an order of winding up and in one of the petitions being Company Petition No.10 of 1986, this Court vide its order dated 1.9.1989, pursuant to the recommendations of the Board for Industrial Financial Reconstruction, directed that NGSL be wound up by and under supervision of this Court and the Official Liquidator attached to this Court was appointed as the Liquidator of the Company and he took the possession of the assets of the Company in liquidation. It, however, appears that the Official Liquidator had not taken the possession of the land bearing Survey No.416 (New Final Plot No.31 of Town Planning Scheme No.5 of Ahmedabad). This Court vide its order dated 12.3.1997 had COMA/28020/2004 10/64 JUDGMENT constituted a sale committee consisting of secured creditors, Official Liquidator and Textile Labour Association for sale of the assets of the Company in liquidation and the Industrial Investment Bank of India (IIBI) the respondent No.2 herein was appointed as Chairman of the said Sale Committee. The applicant Bank was under the impression that the Final Plot No.31 which was included in the sale effected by the IIBI, was land bearing Survey No.416, being Final Plot No.31 of Town Planning Scheme No.5 of Dariapur- Kazipur. It was, however, found that it was not the correct position. The said land was not included and hence the applicant Bank started inquiry. The applicant Bank has also inquired from the Official Liquidator as to whether in the Statement of Affairs filed by the Ex-Directors of the Company in liquidation, the details of the property mortgaged, namely, land being Survey No.416 being Final Plot No.31 of Town Planning COMA/28020/2004 11/64 JUDGMENT Scheme No.5 were furnished or not. The Official Liquidator gave reply to the effect that Survey Number 416 and/or Final Plot No.31 of the land was not indicated in the Statement of Affairs filed by the Ex- Directors of the Company. Even in the valuation report given by Batli Boy & Co., the land bearing Survey No.416 was not mentioned. The Balance-sheet for the year 1985-86 was filed with the Official Liquidator. On perusal of the said Balance- sheet it was noticed that the details of this Survey Number and/or Final Plot of the land were not mentioned therein. 8. On further inquiry with IIBI, the applicant Bank was informed that site was inspected by the Dy. General Manager of IIBI on 2.8.2003, wherein it was ascertained that the land consists of two parts divided by a public road. Building, plant and machinery installed in Survey No.34/1, 20/1 and 33 were COMA/28020/2004 12/64 JUDGMENT taken possession by the Official Liquidator and sold by the sale committee and sale was sanctioned and approved by this Court. As regards land bearing Survey No.416 located on the other side of the road, it was observed during the visit that land is in possession of Shri Sandip Shah, Gujarat Steel Distribution Ltd., who has reported to have engaged private security. The IIBI also informed that the Company in liquidation had process house on the said land and the said process house was closed and later on it was transferred on the name of Aboo Investors and Dealers Ltd (hereinafter referred to as 'ADIL' for short). 9. In view of these facts gathered by the applicant Bank, Officers of the applicant Bank visited the site at Final Plot No.31 of Town Planning Scheme No.5 and they were surprised to note that a big dome was constructed and adjacent to the dome a COMA/28020/2004 13/64 JUDGMENT workshop for automobile repairing was constructed. The dome was housing a automobile showroom purported to be owned by Kataria Group. On further inquiry with the personnel in the showroom it was informed that Kataria Group had purchased the property in different names i.e. in the name of respondent Nos.5 to 13. 10. On behalf of the applicant Bank it was submitted before the Court by Mr.Roshan Desai, learned advocate, that as decided in the case of Himalaya Tools Ltd., reported in 87 Company Cases, 658 once the mortgage is created, mortgagee becomes owner of the property and when it sells mortgaged properties, it is selling its own property. The mortgagor assigns his interest in favour of mortgagee and mortgagor has no right to sell the said property or deal with or dispose of, contrary to the right of mortgagee. The applicant Bank was not aware COMA/28020/2004 14/64 JUDGMENT as to what are the rights under which the respondent No.4 i.e. Indumati Properties & Credit Pvt. Ltd., is claiming and what right if any respondent Nos.5 to 13 have in respect of the said land. It is submitted that right of the respondents No.4 to 13 are contrary to the provisions of Transfer of Property Act and contrary to the interest of State Bank of India as mortgagee. He has further submitted that once a mortgage is always a mortgage and mortgage runs with the land. The State Bank of India as a mortgagee is entitled to take possession from the mortgagor or third party in whose favour the mortgagor or any person may have assigned or sold the said property. Since occupation of Indumati Properties and Credit Pvt. Ltd., and respondents No.5 to 13 is contrary to the provisions of the law and without any title and without any right, State Bank of India is entitled to take possession of the said land. Mr.Desai further submitted that the particulars of COMA/28020/2004 15/64 JUDGMENT charge by way of mortgage created by NGSL were filed with Registrar of Companies and hence the Official Liquidator is supposed to have taken the possession of land bearing Final Plot No.31 (Survey No.416) of Town Planning Scheme No.5. He has submitted that in Statement of Affairs, details of immovable properties are not furnished. The Official Liquidator has not taken proper care in ascertaining the details regarding properties of the Company in liquidation. He has, therefore, submitted that the possession of the properties in question over which the applicant Bank has created its charge, should be handed over to the applicant Bank. 11. On notice being issued, Ms.Amee Yajnik, learned advocate has filed her appearance on behalf of the Official Liquidator. A report is also filed by the Official Liquidator on 25.10.2004. It is stated therein that NGSL (in liquidation) was ordered to be wound up COMA/28020/2004 16/64 JUDGMENT by this Court on 1.9.1989 and he was appointed as the Liquidator of the Company. It is further stated that the possession of the land being Final Plot No.31 (Survey No.416) of T.P. Scheme No.5 of Ahmedabad was not taken over by him since it neither came to his notice or knowledge in the ordinary course that the said land belongs to the Company nor anybody else whether the applicant Bank or other secured creditors or Textile Labour Association, or Ex-Directors of the Company specifically brought this fact to his notice. It is further stated that it has not been mentioned in the Statement of Affairs of the Company filed by the Ex- Directors of the Company. The balance-sheet of the Company also does not disclose this fact. It is further stated that he does not have any independent information, material or documents with him corroborating or contradicting the averments made by the applicant Bank in its application. COMA/28020/2004 17/64 JUDGMENT 12. On notice being served on respondent No.4, Nanavati Associates filed their appearance and affidavit-in-reply is filed by Shri Pravinchandra Atmaram Shah, one of the Directors of the respondent No.4 Company. The respondent No.4 has raised several preliminary objections with regard to the maintainability of the application filed by the applicant Bank. Mr. K.S.Nanavati, learned Senior Counsel appearing for respondent No.4, submitted that the application suffers from the vice of suggestio falsi and suppresio veri in as much as the applicant has suppressed certain vital facts from this Court which would be clear from the facts narrated in the affidavit. The application is barred by law of limitation. The applicant Bank has no right or interest over the said land in question and, therefore, is not entitled to maintain the present application. Neither the applicant COMA/28020/2004 18/64 JUDGMENT Bank as a mortgagee nor the NGSL (in liquidation) had any lease hold right or interest over the said property in question at least with effect from 10.9.1993, when the original lease in favour of NGSL (in liquidation) expired, which would be crystal clear from the facts and circumstances narrated in the affidavit. The application is, therefore, misconceived, baseless and devoid of merits and, therefore, is required to be rejected. 13. Mr.Nanavati has further submitted that an immovable property consisting of land admeasuring 4.23 Acres and 3 gunthas forming part of Town Planning Scheme No.5, Dariapur- Kazipur, Ahmedabad situated on Final Plot No.31 in the registration district and sub- district of Ahmedabad, was initially owned by a Trust, namely, Vrajraj Vallabhbhai Vaishnav Haveli Asarwa Bethak Trust. The said Trust had given the said land on lease to a company COMA/28020/2004 19/64 JUDGMENT known as Ahmedabad Hitechhu Spinning and Manufacturing Co. Ltd., for a period of 99 years from 11.9.1894 for a yearly rent of Rs.585/-. Thus, the said company thereafter constructed various buildings, godowns, etc with regard to the process house for a textile mill and a textile mill was functioning on the said land. Subsequently, the said leasehold rights in the said land were transferred to M/s. Harivallabh Mulchand Mills Co. Ltd. Later on, the said company changed its name from Harivallabh Mulchand Mills Co. Ltd. to New Asarwa Manufacturing Co. Ltd. Thus, the New Asarwa Manufacturing Co. Ltd., become the assignee of the leasehold rights in the said property. Subsequently, with effect from 29.4.1972, the said New Asarwa Manufacturing Co. Ltd., transferred the leasehold rights in the said land to New Gujarat Cotton Mills Ltd., by an instrument dated 29.4.1972 for running the textile mill. This is evident in the records COMA/28020/2004 20/64 JUDGMENT of rights by mutation Entry No. 7339 dated 24.5.1972. Subsequently, the New Gujarat Cotton Mills Ltd., was merged with New Gujarat Synthetic Ltd., as a result of which the leasehold rights stood transferred to NGSL. Thus, the said property was being enjoyed by NGSL as a lessee and a textile unit was being run by it on the said land which was popularly known as Unit-II of NGSL. Thereafter, by registered agreement dated 28.5.1984, the said NGSL transferred its leasehold rights in the said land to M/s. Aboo Investors and Dealers Ltd. A supplementary agreement was entered into by and between NGSL and AIDL. 14. He has further submitted that the transfer of lease hold right by NGSL to AIDL was pursuant to the “Corporate Re-organization” of NGSL, which was approved by State Bank of India. Thus, with effect from 1984, NGSL had no right, interest, much less any leasehold COMA/28020/2004 21/64 JUDGMENT right/interest on the said land in question and the lease hold rights and interest in the said land were transferred to AIDL. This fact is also evident from the letter dated 24.9.1986 issued by the State Bank of India to NGSL and a letter dated 6.10.1986/5.11.1986 written by NGSL to State Bank of India. It is, therefore, contended that the State Bank of India has knowledge about such transfer of lease hold right by NGSL in favour of AIDL right from the beginning i.e. 1984. Despite this fact, the State Bank of India had suppressed this fact in its present application and hence on this ground alone, the application is required to be rejected. 15. He has further submitted that a deed of conveyance dated 28.5.1986 was executed by and between NGSL and AIDL by which the said process house at Unit II situated in the land in question was conveyed and transferred to COMA/28020/2004 22/64 JUDGMENT AIDL for the consideration agreed between the parties and specifically stated in the said conveyance deed. In view of the transfer of lease hold right in favour of AIDL in respect of the land in question, the said AIDL was paying yearly rent to the original land owners i.e. the said Trust. 16. He has further submitted that in September, 1989 the present respondent No.4 was registered under the provisions of the Companies Act, 1956 and having its registered office at Calcutta had made an offer to the said Trust for purchase of the property in question. Since the said property was owned by the public charitable trust, appropriate permissions by the Charity Commissioner, were also required to be obtained. On 22.12.1989, the Board of Trustees in its meeting passed a Resolution for sale of the said property to the respondent No.4 alongwith the encumbrances of lease for 99 years. COMA/28020/2004 23/64 JUDGMENT Thereafter, on 12.1.1990, an advertisement was published in the newspaper, 'Gujarat Samachar' by the said Trust inviting any objection by any person with regard to the sale of the said property and the application for permission to sell being made before the Charity Commissioner. At that time no objections were received. Neither the applicant Bank nor the Official Liquidator had raised any objection. Thereafter, on 6.3.1990 an order came to be passed in an application under Section 36 of the Bombay Public Trust Act by the Charity Commissioner, Ahmedabad granting permission for sale of the property in question. Pursuant to the said permission granted on 8.3.1990 the said Trust called upon the respondent No.4 to make the payment of agreed amount within 10 days. On 23.5.1990, the deed of conveyance by and between the said Trust and the respondent No.4 came to be executed by which the said property was conveyed to the respondent No.4. COMA/28020/2004 24/64 JUDGMENT Thus, this property came to be owned by the respondent No.4 with effect from 23.5.1990. However, at the said time, AIDL was enjoying the said property as a tenant. Since the lease which was for a period of 99 years, expired on 10.9.1993, the respondent No.4 called upon AIDL to hand over the vacant and peaceful possession of the said land, by notice dated 10.11.1993. Since AILD was not handing over back the vacant and peaceful possession of the land in question, respondent No.4 was constrained to file a suit in Ahmedabad Small Causes Court, being H.R.P. Suit No.243 of 1994. Pending the said suit before the Ahmedabad Small Causes Court, settlement was arrived at between the respondent No.4 and AIDL and a joint purshis for a decree was filed before the Ahmedabad Small Causes Court on 20.5.1994. Ultimately a decree in terms of joint purshis was passed by the Ahmedabad Small Causes Court and AIDL was required to hand over a vacant and COMA/28020/2004 25/64 JUDGMENT peaceful possession of the land in question to the respondent No.4. However, despite the decree, AIDL did not hand over vacant and peaceful possession of the land to the respondent No.4 and, therefore, an Execution Petition No.192 of 1994 came to be filed by respondent No.4 in the Ahmedabad Small Causes Court. Ultimately, pursuant to the execution proceedings, the vacant and peaceful possession of the land was handed over by AIDL to respondent No.4. After the vacant and peaceful possession of the land in question was handed over to the respondent No.4, the respondent No.4 had conveyed the pieces and parcels of the land to respondents no.5 to 13 as per the conveyance deed executed by and between the respondent No.4 and the respondents No.5 to 13. 17. Thus, in view of the above facts, Mr.Nanavati has strongly urged before the Court that the property in question came to COMA/28020/2004 26/64 JUDGMENT be owned by the respondent No.4 with effect from 23.5.1990 and after the expiry of the lease with effect from 10.9.1993, the possession of the said property was also vested with the respondent No.4. Thereafter, the pieces and parcels of the land in question were sold to respondents No.5 to 13 as per conveyance deed produced by the said respondents. It is, therefore, contended that the application made by the State Bank of India is absolutely devoid of merit and misconceived and the same deserves to be rejected