OJA/51/2004 1/140 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 51 of 2004 In COMPANY APPLICATION No. 445 of 2000 In COMPANY PETITION No. 121 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE K.M.MEHTA ============================================================== 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 ? ============================================================== O.N.G.C. LTD. - Appellant(s) Versus O.L. OF AMBICA MILLS CO. LTD. & 11 - Opponent(s) ============================================================== Appearance : MR. KAMAL TRIVEDI, LD. ADDL. ADVOCATE GENERAL WITH MR. K.M. THAKAR, LD. ADVOCATE FOR THE APPELLANT MR RM DESAI for Opponent(s) : 1, MR JT TRIVEDI for Opponent(s) : 2, MR PRANAV G DESAI for Opponent(s) : 3, NOTICE SERVED for Opponent(s) : 4 - 5, 7, 12, MR NAVIN K PAHWA for Opponent(s) : 6, MR. MIHIR JOSHI, LD. SR. ADVOCATE WITH SINGHI & CO for Opponent(s) : 8, NOTICE SERVED BY DS for Opponent(s) : 9, OJA/51/2004 2/140 JUDGMENT MR DS VASAVADA for Opponent(s) : 10, MR SK JHAVERI for Opponent(s) : 11, ================================================================== CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE K.M.MEHTA Date : 16/01/2006 C.A.V. JUDGEMENT: (Per : HONOURABLE MR.JUSTICE K.M.MEHTA) Oil and Natural Gas Corporation Ltd. (hereinafter referred to as “ONGC”) appellant (original applicant) has filed this appeal under Section 483 of the Companies Act, 1956 (hereinafter referred to as “the Act”) challenging the judgment and order passed by the learned Single Judge whereby the application being Company Application No. 445 of 2000 in Company Petition No. 121 of 1995 preferred by the appellant has been rejected. 2. The facts giving rise to this appeal are as under: OJA/51/2004 3/140 JUDGMENT BACKGROUND OF THE MATTER: 2.1 ONGC was initially a department of the Government of India but, in view of its expanding activities in the search for strategic and vital materials like oil, petroleum and its products it was set up as a body corporate. It is now a statutory corporation constituted by and under the Oil and Natural Gas Commission Act (Central Act 43 of 1959, hereinafter referred to as “the Act”). The Act provides for the establishment of a Commission “for the development of petroleum and petroleum products produced by it and for matters connected therewith”. Section 2(f) of the Act defines “petroleum” as having the same meaning as in the Petroleum Act, 1934 (Act 30 of 1934) and as including “natural gas”. The Commission established under the Act took over the previously existing organization with effect from September 18, 1959. OJA/51/2004 4/140 JUDGMENT 2.2 In the course of its drilling and exploration of oil, ONGC discovered oil-bearing fields in Cambay and Ankleshwar region in 1959 and 1961 respectively. In most of the oil fields situated in Gujarat, gas comes out along with crude oil and is commonly known as “associated gas”. In Cambay area, gas is unaccompanied by crude oil and is known as “free gas”. This is easily combustible and can be used as domestic as well as industrial fuel. We are concerned here with both these commodities which are generally known as “natural gas” and we shall refer to them compendiously as “gas”. 2.3 At that time, there were very few industries set up in and around Vadodara and these depended, besides electricity, on other forms of energy generated through coal or furnace oil. In July 1967, the supply of gas to some of these industries in and around Vadodara city was started, initially as a temporary measure pending OJA/51/2004 5/140 JUDGMENT the effective materialisation of the Gujarat Fertilizer Corporation demand, after which the industries were to go over to fuel oil if gas could no longer be supplied. After a series of discussions, the Federation of Gujarat Mills and Industries agreed to a price of Rs. 100/- per unit of Ankleshwar gas for this supply. Among the industries that thus received gas supply were originally some ten respondents in appeal before the Supreme Court (respondents 2 to 10 in these appeals) who have formed themselves, in September, 1978, into an association called “The Association of Natural Gas Consuming Industries of Gujarat” It may be noted that out of 10 respondents we are concerned with Ambica Mills respondent No. 1 only which has gone in liquidation and therefore the Official Liquidator of High Court is representing it. The supply to these industries – extended later to a few more – was based on individual contracts entered into with each one of the concerns. Initially, ONGC OJA/51/2004 6/140 JUDGMENT entered into contracts valid for a period of five years at a time but, subsequently – it is said, due to fear of possible shortage in the availability of enough gas – this was changed and the contracts were, generally, made annual, except in regard to certain public sector undertakings and, it is said, a few companies. The rates of supply were also slowly stepped up as can be seen from the following table: Period Price of supply ------------------------------------------------ January 1, 1976 to March 31, 1976 Rs. 322.63 April 1, 1976 to December 31, 1976 Rs. 341.45 January 1, 1977 to March 31, 1977 Rs. 351.00 April 1, 1977 to December 31, 1977 Rs. 371.16 January 1, 1978 to March 31, 1978 Rs. 382.15 April 1, 1978 to March 31, 1979 Rs. 504.00 2.4 According to ONGC, the price demanded OJA/51/2004 7/140 JUDGMENT from these industries had initially been based on alternative fuel cost i.e. the cost which these industries would have had to pay for fuel oil if no supply of gas had been available. Later upto December, 1975, the price was based on the cost of production, as determined by the award. After the expiry of the contract, a new contract stipulated prices for supply that were prevalent at the time of the respective contracts. As the said price was heavy, industries were not satisfied. 2.5 In view of the rise in price, an association of gas consumers was formed and ultimately a society registered under the Co- operative Societies Act. They filed petition before this Court being Special Civil Application No. 833 of 1979 and others praying to issue appropriate writ directing the respondent to supply the break-up and data on the basis of which price structure was arrived at by O.N.G.C., OJA/51/2004 8/140 JUDGMENT for supply of the gas etc. These matters were finally decided by a Division Bench of this Court. The judgment is reported in 24(2) GLR 1437 in the case of Association of Natural Gas Consuming Industries of Gujarat and Ors. Vs. O.N.G.C. & Anr. In para 36 of the judgment on page 1460 the Division Bench has given certain directions and in para 37 of the judgment the Division Bench set aside the price demanded by O.N.G.C., leaving it open to deal with the question of price fixation in any one of the three modes suggested in para 36. The petition was, therefore, partly allowed and rule was made absolute accordingly in the petitions with costs. 2.6 Being aggrieved and dissatisfied with the said judgment, O.N.G.C., preferred appeal before the Hon'ble Supreme Court. During the pendency of the petition, various orders were passed by the Hon'ble Supreme Court. However, on 15.4.1987 the Hon'ble Supreme Court was pleased to pass the OJA/51/2004 9/140 JUDGMENT following interim order: 2.6A “We direct that during the pendency of the appeals, the Oil and Natural Gas Commission will not disconnect the supply of gas to the respondents, namely, the Association of Natural Gas Consuming Industries of Gujarat, M/s. Jayant Paper Mills Ltd., M/s. Alembic Glass Industries Ltd., M/s. Alembic Chemicals Works Company Ltd., Shri Dinesh Mills Limited, M/s. Sarabhai Common Services, M/s. New India Industries Limited, Punjab Steel Rolling Mills Private Ltd., Chandan Metal Products Ltd., and Shri Ambica Mills Ltd. Mill No. 2 and will continue to supply gas as hitherto, charging at the rate of Rs. 1,000/- for one thousand cubic meters subject, however, to the undertaking by the respondents which has been given and has been accepted here, that the said OJA/51/2004 10/140 JUDGMENT respondents will not charge encumber or alienate, except with the leave of this Court, any of their immovable assets included in the respective undertakings and that they will make their immovable assets, available for discharging the respective liabilities on account of the difference in the price of all the gas supplied to them and further during the pendency of the appeals as determined by order made by the Court while disposing of the appeal. The undertaking will be filed within four weeks from today.” 2.6B As far as the present appeal is concerned, we are concerned with the case of Ambica Mills which has been represented through the Official Liquidator, respondent No. 1. 2.7 Pursuant to the aforesaid order of the Hon'ble Supreme Court dated 15.4.1987, an OJA/51/2004 11/140 JUDGMENT undertaking was given by Ambica Mills to the aforesaid effect on 27.5.1987 and therefore supply of gas to the Unit was continued. Paragraph 3 and 4 of the undertaking read as follows: 2.7A “para 3 – I state that respondent No. 10 company undertakes that none of immovable assets of the company will be further charged and encumbered hereafter with effect from 15.4.1987, i.e. from the date of order of this Hon'ble Court except with the leave of this Hon'ble Court. 2.7B Para 4 - I state that respondent No. 10 Company further undertakes not to alienate any of its immovable assets hereafter with effect from 15.4.1987 except with the leave of this Hon'ble Court. The respondent No. 10 company OJA/51/2004 12/140 JUDGMENT further undertakes to make available all its immovable assets in the event of discharging the liabilities which may arise on account of the difference between the price at which all the Gas being supplied in the company during the pendency of the proceedings in this connection and the price which may be determined by this Hon'ble Court while disposing of the present appeals finally.” 2.8 Thereafter, the matter was heard by the Hon'ble Supreme Court finally. The Hon'ble Supreme Court delivered the final judgment on 4.5.1990 (since reported in 1990 Supp) SCC 397). The Hon'ble Apex Court, as regards the price fixation, had set aside direction given in para 36 of the judgment of the High Court. The Hon'ble Supreme Court did not approve the same and ultimately in para 40 sub-para (viii) on page 440 OJA/51/2004 13/140 JUDGMENT of the judgment the Hon'ble Supreme Court has given certain directions by observing as under: 2.8A “(viii) On behalf of the ONGC, it has been pointed out that a sum of Rs. 14.35 crores is outstanding for the period from December, 1982 to August, 1989 from eighteen concerns, even on the basis of the interim prices at which the ONGC has been supplying them gas under the orders of this Court, primarily due to shortfalls in the guaranteed offtake and that four concerns, who have stopped taking supply of gas, are in arrears to the tune of about Rs. 12 lakhs. We need hardly say that the ONGC will be at liberty to take immediate steps to recover the charges due from the respondents in the light of this judgment.” OJA/51/2004 14/140 JUDGMENT 2.9 After the aforesaid judgment of the Hon'ble Supreme Court, it appears that ONGC has filed application for certain directions and modification of the aforesaid final judgment of the Hon'ble Supreme Court. From the record it appears that the matter was taken up by the Hon'ble Apex Court on 8.12.1992 (page 142 of the paper book) and at that time the learned senior counsel on behalf of the Association of Natural Gas Consuming Industries submitted that these members (respondents in appeal) will make some more substantial payment to the ONGC by the end of the month and the particulars of payment so made would be submitted in the Court on or before 8.1.1993. Thereafter, the matter was again taken up for hearing before the Hon'ble Supreme Court on 6.4.1993 wherein ONGC filed application for certain directions on account of non-payment by the industries (respondents in the appeals) of their dues for the period prior to 29.1.1987 remaining unpaid on account of certain orders OJA/51/2004 15/140 JUDGMENT made during the pendency of the appeals of which the respondents have taken full benefit. From the said order it appears that in that order passed on 6.4.1993 the Hon'ble Apex Court observed that the liability of these respondents to make the payment of the amounts due from them to the ONGC, as a result of benefit of stay orders obtained by them giving the requisite undertaking, is beyond controversy and cannot be disputed (order of the Hon'ble Supreme Court on page 144 relevant page 146). In that order the liability of the present respondents is shown on page 151. In the said order it is observed that principal amount due from Ambica Mills as on 31.3.1993 in respect of 1.4.1979 to 21.1.1987 as shown in the statement furnished by ONGC is Rs. 1.58 crores and interest calculated thereon by ONGC amounted to Rs. 4.96 crores. On behalf of Ambica Mills the principal amount is admitted while interest calculated by ONGC is subject to verification (page 151 of paper book). It may be noted that at OJA/51/2004 16/140 JUDGMENT that time the company was before BIFR. 2.10 It may be noted from the record that the Hon'ble Supreme Court by its order dated 29.4.1993 (page 154 of the paper book) granted the prayer of ONGC that ONGC would also be entitled to take steps regarding disconnecting the supply of gas. 2.11 From the record it appears that the matter was again heard by the Hon'ble Supreme Court on 10.8.1993, by that time as far as the present respondents are concerned, BIFR order was already obtained on 28.5.1993 and after obtaining order from the BIFR the learned counsel for the present respondents made a statement that the liberty be granted for sale not only of Vatva land but also Unit No. 1, at Kankaria referred to in the order of BIFR to enable the company to first pay entire dues of the ONGC and thereafter utilize the remaining surplus for other purposes OJA/51/2004 17/140 JUDGMENT as mentioned in the order of BIFR and the Hon'ble Supreme Court has accepted the submission of the learned counsel for the respondent in this behalf and accordingly the Hon'ble Supreme Court has granted the liberty to the company to take necessary steps in accordance with the orders of the BIFR for sale of Vatva land as well as properties described as Unit No. 1. The Hon'ble Supreme Court observed that the entire dues of the ONGC shall be first paid out of the total sale price and the balance, if any, remaining thereafter shall be available for utilization in any other manner directed by the BIFR. 2.12 It appears that meanwhile BIFR has opined that the Company may be required to go in liquidation. Pursuant to the aforesaid order of BIFR and as some winding up petitions were filed before this Court, from the record it appears, this Court passed order on 17.10.1997 for winding up of Ambica Mills in Company Petition No. 66 of OJA/51/2004 18/140 JUDGMENT 1988 and others including Company Petition No. 121 of 1995 being Board Opinion under Section 20 of SICA. This Court had appointed Provisional Liquidator also. 2.13 Thereafter again the matter reached before the Hon'ble Supreme Court and the Hon'ble Supreme Court in the course of hearing of various interim applications filed by the parties for appropriate directions, passed order holding, inter alia, that out of the assets of the company under liquidation on 17.10.1997, the dues of ONGC are required to be paid of first and the question of making any payment to any other creditor can arise only out of surplus, if any,remaining after the payment of full dues of the ONGC. The order of the Hon'ble Supreme Court dated 17.10.1997 reads as under: 2.13A “All that is necessary to be said is that out of the assets of the Company OJA/51/2004 19/140 JUDGMENT under liquidation, the dues of ONGC Ltd., are required to be paid off first and the question of making any payment to any other creditor can arise only out of the surplus if any remaining, after the full dues of the ONGC Ltd., have been paid off. The High Court is, therefore, to proceed with the matter in this manner. IAs stand disposed off.” 2.14 From the record it appears that after the aforesaid order dated 17.10.1997 was passed by the Hon'ble Supreme Court, Textile Labour Association has filed Review Application before the Hon'ble Supreme Court to review the order dated 17.10.1997 and the Hon'ble Supreme Court heard the matter filed by the Textile Labour Association and in Review Petition Nos. 1193-1203 of 2001 in I.A.Nos. 168-178 of 1997 in Civil Appeal No. 8530-40 of 1983 in the matter of Textile Labour Association Vs. The Official OJA/51/2004 20/140 JUDGMENT Liquidator and Anr., since reported in [(2004) 9 SCC 741]= 120 Com. Cases 505, a three Judge Bench of the Hon'ble Supreme Court (Coram: S. Rajendra Babu, Dr. A.R. Lakshmanan and G.P. Mathur, JJ) considered its various earlier judgments and also Section 529 and Section 529A of the Companies Act and ultimately observed as under: (pages 56-57 of the paper book) (120 Com. Cases 505 the judgment was delivered on 12.4.2004) (relevant page No. 509/510): 2.14A “The effect of Sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen's dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under Section 529A to the extent of the workmen dues. The purpose of Section 529A is to OJA/51/2004 21/140 JUDGMENT ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the company and the assets of the company would remain charged for the payment of the workers' dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except Section 529A. This section overrides preferential claims under Section 530 also. Under Section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues. 2.14B “Therefore, the law is clear on the matter as held in UCO Bank's case that Section 529A will override all other claims of other creditors even where a OJA/51/2004 22/140 JUDGMENT decree has been passed by a Court”. 2.14C It may be noted that the Hon'ble Supreme Court has considered its earlier judgments in the case of UCO Bank Vs. Official Liquidator reported in 1994(5) SCC 1; Industrial Credit and Investment Corporation of India Ltd. Vs. Srinivas Agencies & Ors. 1996(4) SCC 165; Allahabad Bank vs. Canara Bank & Anr. 2000(4) SCC 406 and A.P. State Financial Corporation Vs. Official Liquidator 2000(7) SCC 291 and thus held as follows: 2.14D Therefore, claims, if any, of ONGC will have to be worked out in accordance with Sections 529 and 529A of the Companies Act as well. The contention advanced on behalf of ONGC by Shri Raju Ramachandran that if a mandamus had been issued, it will prevail over any law is not tenable OJA/51/2004 23/140 JUDGMENT and is rejected. 2.14E In the result, we make it clear that order made by this Court on 17.10.1997 in I.A. No. 168-178/1997 in Civil Appeal No. 8530-40/1983 will have to be read subject to provisions of Sections 529 and 529A of the Companies Act. 2.14F The Review petitions stand allowed in the manner stated above.” 2.15 Thereafter, in Company Application No. 445 of 2000 in Company Petition No. 121 of 1995 filed by ONGC seeking direction for payment to ONGC from the sale proceeds available from the sale of the assets/properties of the Ambica Mills Ltd. (in liquidation), several prayers were made by the applicant in which it was prayed that this Court may be pleased to direct the respondent to make payment to the applicant ONGC towards the OJA/51/2004 24/140 JUDGMENT outstanding dues amounting to Rs. 1799.367 lakhs as on 28.2.1998 with further interest thereon till the date of payment/till the date of realisation for natural gas supplied to M/s. Ambica Mills Company Limited (in liquidation). The petitioner further prayed for direction to grant injunction restraining the respondent and/or his agents, officers, servants from making any payment/disbursement in any manner out of any of the sale proceeds that are available from the sale of assets/properties of M/s. Ambica Mills Company Ltd. (in liquidation). 2.16 The matter was heard at length and the learned Single Judge by his judgment and order dated 1.10.2004 in paragraphs 39 and 40 observed as under: (pages 41-42 of the paper book). 2.16A “ONGC therefore cannot claim any preferential right on the basis of the order of 17.10.1997 in priority to the OJA/51/2004 25/140 JUDGMENT secured creditors and the workmen taking into consideration the provisions of Sections 529 and 529A of the Act. Such preferential claim, if falling under Section 530 of the Act would follow the claims of Secured Creditors and the Workmen under Sections 529 & 529A of the Act. In case the claim of ONGC is not proved to be preferential under Section 530 of the Act they would therefore fall for consideration along with all other claims of other creditors as ONGC, on its own saying, is a decree holder. 2.16B In view of what is stated hereinbefore this application cannot be granted at this stage, i.e. before claims of Secured Creditors and workmen are processed under Sections 529 & 529A of the Act. Despite categorical statement at the Bar, under instructions, that ONGC did not want to OJA/51/2004 26/140 JUDGMENT lodge any claim before the Official Liquidator, it will be open to ONGC to lodge its claim in accordance with law and seek its satisfaction when claims of other Creditors of the Company in liquidation are taken up for consideration for distribution of the funds which may be available at that time. The application is accordingly rejected. Notice is discharged.” 2.17 Being aggrieved and dissatisfied with the aforesaid judgment dated 1.10.2004, ONGC has filed the present O.J. Appeal No. 51 of 2004 which was admitted and order was passed on the Civil Application on 18.10.2004 staying the impugned judgment/order subject to disbursement to the workers at the rate of Rs. 2500/- to each worker as agreed by the parties. 3. Mr. Kamal Trivedi, learned sr. advocate OJA/51/2004 27/140 JUDGMENT and Additional Advocate General with Mr. K.M. Thakar, learned advocate and Mr. Ajay R. Mehta, learned advocate in cognate matters appear on behalf of the appellant. On behalf of the Official Liquidator Mr. R.M. Desai, learned advocate appears. For Bank of India Mr. J.T. Trivedi, learned advocate appears. On behalf of respondent No. 3 Mr. Pranav G. Desai, learned advocate appears, Respondent Nos. 4, 5, 7, 12 are served but nobody appears on their behalf. For respondent No. 6 Mr. Navin Pahwa, learned advocate appears. For respondent No. 8 Mr. Mihir Joshi, learned sr. counsel with Singhi & Co., appears. On behalf of L.I.C., nobody appears. Mr. Vasavada, learned advocate appears on behalf of Textile Labour Association. On behalf of Mazdoor Sabha, Vatva, Mr. S.K. Jhaveri, learned sr. advocate appears. CONTENTION OF LEARNED SR. ADVOCATE MR. KAMAL TRIVEDI WITH MR. K.M. THAKAR AND MR. AJAY R. OJA/51/2004 28/140 JUDGMENT MEHTA, LEARNED ADVOCATE FOR THE APPELLANT: 3.1 Mr.