COMA/69/2008 1/34 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION No. 69 of 2008 In COMPANY PETITION No. 37 of 1998 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ Sd/- ==================================== 1. Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2. To be referred to the Reporter or not ? YES 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 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 ? NO 5. Whether it is to be circulated to the civil judge ? NO ==================================== RASIKLAL S MARDIA - Applicant Versus O.L. OF MARDIA CHEMICALS LIMITED & 1 - Respondents ==================================== COMA/69/2008 2/34 JUDGMENT Appearance : PARTY-IN-PERSON for Applicant. MS AMEE YAJNIK for Official Liquidator. MR MIHIR THAKORE, SENIOR ADVOCATE WITH MR SANDEEP SINGHI FOR SINGHI & CO for ICICI Bank Limited. ==================================== CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 15/04/2008 ORAL JUDGMENT 1. The applicant has taken out this Judge's Summons praying for the following directions and/or orders from this Court :- A) YOUR LORDSHIPS may be pleased to permit me to represent in all legal cases filed by / against Mardia Chemicals Limited, a Company in liquidation and to direct the Official Liquidator to provide me the copies of the documents, for defending these suits, as and when required; B) YOUR LORDSHIPS may be pleased to direct the Official Liquidator of Mardia Chemicals Limited (In Liquidation) I. To file appropriate proceedings for challenging / recalling the order dated 12.09.2007 of the City Civil Court at Ahmedabad in Civil Suit No. 3189 of 2002; COMA/69/2008 3/34 JUDGMENT II. To represent the Company in liquidation in the proceedings enlisted in Annexure A to the affidavit in support of the Judge's Summons; III.To appear in Misc. Application filed in Counter Claim in Original Application No. 278 of 2002 and to suitably defend the Company in liquidation in the said proceedings; IV.To represent the Company in liquidation in Suit No. 434 of 2003 pending before the Bombay High Court and to suitably defend the Company in liquidation in the said proceedings; C.YOUR LORDSHIPS may be pleased to start the contempt proceedings against the Official Liquidator and other responsible officers of the office of the Official Liquidator for making the contempt of the orders passed by this Hon'ble Court in Company Application No. 285 of 2006 and in Company Application No. 97 of 2006. D.YOUR LORDSHIPS may be pleased to make responsible the Official Liquidator and the Government of India, Ministry of Corporate Affairs, New Delhi to compensate the losses incurred to the Company in liquidation due to the negligent and lackluster approach of the Official Liquidator towards the various affairs of the Company in liquidation. 2. The Court has issued notice to the Official Liquidator COMA/69/2008 4/34 JUDGMENT on 08.02.2008. The Court has also granted leave to the applicant to join ICICI Bank Limited as party – respondent No.2. 3. Pursuant to the notice issued on ICICI Bank Limited, Mr. Mihir Thakore, learned Senior advocate with Mr. Sandeep Singhi for Singhi & Co. appeared for ICICI Bank Limited. The applicant has appeared as party-in- person. Ms. Amee Yajnik, learned advocate appeared for the Official Liquidator. 4. The applicant has filed a detailed affidavit along with all supporting documents in support of Judge's Summons. The respondent No.2 Bank has also placed several documents along with covering letter dated 12.03.2008. Documents relating to the proceedings of previous Judge's Summons taken out by the present applicant in Company Application No.285 of 2006 are placed on record. 5. It is the case of the applicant that he was the Promoter / Shareholder and Ex-Chairman and Managing COMA/69/2008 5/34 JUDGMENT Director of Mardia Chemicals Limited, the Company in liquidation. The applicant is also a guarantor to various loans advanced by the Banks and Financial Institutions to the Company in liquidation. The Company in liquidation was ordered to be wound up by this Court by order dated 03.08.2005 passed in Company Petition No. 37 of 1998. The Company in liquidation is facing multiple proceedings initiated by its various lenders. The proceedings are pending either before the Debts Recovery Tribunal at Ahmedabad, Debts Recovery Tribunal at Mumbai, the High Court of Judicature at Mumbai and in the City Civil Court at Ahmedabad. After the order for winding up was passed, the Official Liquidator was informed about all the proceedings pending against / by the Company in liquidation and was also requested to appear in the said proceedings and to represent the Company in liquidation. The Court's attention was drawn to the table showing major proceedings pending against / by the Company in liquidation which is produced at Annexure A to the affidavit filed in support of the Judge's Summons. COMA/69/2008 6/34 JUDGMENT 6. Mr. Mardia appearing as party-in-person has submitted that he has earlier moved Company Application No.285 of 2006, inter alia, praying for permission to represent the Company in liquidation in the proceedings pending before the DRT, Mumbai and Ahmedabad, High Court of Bombay and City Civil Court at Ahmedabad with the authority to appoint and instruct advocate to appear for and on behalf of the Company in liquidation in the said proceedings. This Court took the view that the Official Liquidator is the custodian of the property of the Company in liquidation and since no application has been moved by the Official Liquidator seeking assistance, the prayer for permission to represent the Company in various proceedings cannot be granted. Accordingly, the said Company Application came to be rejected vide order dated 01.08.2006. 7. Mr. Mardia has further submitted that he has moved an application to the Official Liquidator under the Right to Information Act, 2005 and in reply to the said COMA/69/2008 7/34 JUDGMENT application given on 22.05.2007, the Official Liquidator had, inter alia, given details of the 21 legal cases out of which, 2 cases at Mumbai, namely, O.A. No.278 of 2002 pending before DRT, Mumbai and Civil Suit No. 434 of 2003 have been entrusted to M/s. Rajesh Shah & Co., Advocates. Inspite of this neither the Official Liquidator nor any of his appointed advocates appeared in any of the proceedings and some of the proceedings against / by the Company have been disposed of in absence of the Official Liquidator. He has, therefore, submitted that non- appearance by the Official Liquidator or in absence of any representation on his behalf has ultimately resulted into dismissal of the cases which adversely affected the interest of the Company in liquidation. 8. Mr. Mardia has further submitted that the Company in liquidation had filed Civil Suit No. 3189 of 2002 in the City Civil Court at Ahmedabad, inter alia, praying for a decree in the sum of Rs.5631.44 Crores against the defendants of the said suit. The defendants of the said suit filed an application below Exh. 11 under Order COMA/69/2008 8/34 JUDGMENT VII, Rule 11 of the Civil Procedure Code seeking dismissal of the suit as barred by limitation. The Official Liquidator was expected to represent the Company in liquidation in the said proceedings. However, the said application was taken up for hearing in absence of the Official Liquidator and by an order dated 12.09.2007 passed by the City Civil Judge at Ahmedabad, the said application has been allowed and the plaint was ordered to be rejected under the provisions of Order VII, Rule 11 of the Civil Procedure Code. In paragraph 6 of the said order, it was specifically observed by the learned City Civil Judge that though notice came to be issued to the Official Liquidator and was served upon him on 31.07.2006, the Official Liquidator has not remained present. Mr. Mardia has further submitted that relying upon the above order of the City Civil Court, Ahmedabad in the suit filed by the Company in liquidation, one Misc. Application has been preferred in the pending proceedings before the DRT, Mumbai in the counter claim to the O.A. No. 272 of 2002. The said OA has been filed by ICICI Bank Limited wherein a counter COMA/69/2008 9/34 JUDGMENT claim has been filed by the Company in liquidation. By an order passed by the Bombay High Court, the said counter claim has been ordered to be heard along with the original application. Relying upon the order passed by the City Civil Court, on 12.09.2007, an application has been preferred by ICICI Bank Limited, inter alia, seeking dismissal of the counter claim filed by the Company in liquidation. In the said application, it was specifically averred that the Official Liquidator though served has chosen not to remain present in the said proceedings. He has, therefore, submitted that the Official Liquidator, though duty bound to represent the Company in liquidation, in the pending proceedings, has chosen not to do so and the proceedings initiated by the Company in liquidation are getting disposed of in absence of the Official Liquidator. Mr. Mardia has further submitted that he wrote several letters to the Official Liquidator, inter alia, calling upon him to represent the Company in liquidation in various proceedings. By letter dated 31.01.2008, a specific attention of the Official Liquidator was drawn to the Misc. Application preferred by ICICI Bank Limited and COMA/69/2008 10/34 JUDGMENT the Official Liquidator was requested to represent the Company at the hearing scheduled on 04.02.2008. However, he did not remain present at the said hearing. The applicant had personally attended the hearing where the applicant's locus was protested by Counsel appearing for ICICI Bank Limited in view of the appointment of the Official Liquidator. However, on applicant's request, DRT in the interest of the Company in liquidation has adjourned the matter. 9. Mr. Mardia has further submitted that the Official Liquidator of the Company in liquidation has also remained totally negligent towards the Debenture Trustee Suit No. 434 of 2003 filed before the Bombay High Court by ICICI Bank Limited and consequent possession of around 95% of the properties of the Company in liquidation held by the Court Receiver on behalf of ICICI Bank Limited. He has further submitted that the said case is the unique example of connivance of ICICI Bank Limited, Valuers appointed by the Court Receiver at the instance of the ICICI Bank Limited and the Security Agency appointed by ICICI COMA/69/2008 11/34 JUDGMENT Bank Limited to safeguard the properties of the Company in liquidation at Mardianagar plant at Surendranagar Dist. He has further submitted that the failure and inaction on the part of this trio has resulted into large scale pilferage of the properties of the Company in liquidation in a very systematic and a very preplanned manner. Being aggrieved by such a large scale pilferage of the properties of the Company in liquidation, the applicant had moved a petition being the Notice of Motion No.3835 of 2007 in Civil Suit No.434 of 2007 before the Bombay High Court giving very exhaustive details along with the copies of the correspondence / documents with prayers for direction for fresh inventory and valuation of the assets, for direction for CBI investigation, recoupment of loss caused to the properties of the Company in liquidation and change of security agency appointed by ICICI Bank Limited. A copy of the said notice of motion was served on the Official Liquidator. However, he did not remain present and the applicant's locus standi to the Debenture Trustee Suit was protested by ICICI Bank Limited before the COMA/69/2008 12/34 JUDGMENT Bombay High Court. Taking the view that the Company is in liquidation and the Official Liquidator has been brought on the record of the case, notice of motion moved by the applicant was rejected by the Bombay High Court. 10.Mr. Mardia has further submitted that in Civil Suit No.434 of 2003 when the Court Receiver represented before the Bombay High Court, regarding non- cooperation of ICICI Bank Limited, vide his report No.368 of 2005 in the matter of verification of the thefts, complaints and incomplete inventory in continuance with the joint Inspection dated 23.07.2007, the Bombay High Court vide order dated 29.11.2007 on the Court Receiver's report No. 368 of 2007 directed ICICI Bank Limited to co-operate. Even after assuring the Bombay High Court to give full cooperation in the matter of investigation of thefts and re-inventory, the Bank has not made any arrangement for visits of the Court Receiver on the appointed dates on two occasions. He has further submitted that this is not the solitary case of large scale thefts of the COMA/69/2008 13/34 JUDGMENT properties of the Companies in liquidation. There are number of such cases specifically noted by the Court. He has invited the Court's attention to the order dated 12.08.2005 passed by this Court in the case of Calico Mills wherein it is observed that the Official Liquidator as well as the Security Personnel deployed by him have totally failed to protect and safeguard the properties of the Company in liquidation. The Court, therefore, took the view that the Official Liquidator is neither competent to take care of the properties of the Company in liquidation nor he had any desire to take any effective steps. The Court further observed that his office might be involved in allowing such thefts, pilferages or similar such things. The Court was at pains to point out that this was not the solitary case. In many of the Companies in liquidation, similar such things are happening day in and day out. He has also invited the Court's attention to the order dated 26.04.2006 passed by this Court in the case of Official Liquidator of Jay Agrochem Limited V/s. Bank of Baroda and others, wherein it is observed that the Court has been finding various complaints against the COMA/69/2008 14/34 JUDGMENT Official Liquidator in relation to non-payment of the security charges to the Security Agencies, some of the lawyers had been alleging against the Official Liquidator that for making payment, or for submitting a report, to obtain sanction from the Court, the Official Liquidator wants piece of his cake. The Court further observed that after the Company is wound up, it becomes a dead animal. Jackals, vultures and scavengers start eating the flesh and bones of the dead animal. Based on this observation, Mr. Mardia has submitted that similar negligence is observed in protection of the properties of the Company in liquidation by the Official Liquidator of Amar Dye Chem Limited, a Company in liquidation at Mumbai where also the applicant was Ex-Chairman. The properties were worth Rs.300 Crores out of which heavy machineries attached to the earth have been stolen from the possession of the Official Liquidator and the litigation was also pending before the Bombay High Court. On the application moved by the applicant before the Bombay High Court, an order was passed on 29.09.2006 in Company Application No.676 of 2006 COMA/69/2008 15/34 JUDGMENT preferred by the applicant wherein one of the reliefs is in relation to holding of an inventory by the Official Liquidator and after depositing a sum of Rs.5 Lacs to meet with the expenses of taking inventory, the Bombay High Court has passed an order directing the Official Liquidator to take assistance from the applicant to find out an agency which can hold an inventory and also personally go to the site at the time of inventory. He has, therefore, submitted that on joint verification with the help of newly appointed Valuer, the applicant and the Official Liquidator, inventory was taken and valuation report was filed by the Valuer. The applicant has filed affidavit in the said proceedings stating that nearly 90% of valuable machineries and equipments have been decoited and robbed. These facts are highlighted only because the Official Liquidator has depicted a total negligent and lackluster approach towards protection and safeguarding of the properties handed over to him as per the orders of the Court and he has totally failed to discharge his duties entrusted to him under the Companies Act, 1956. COMA/69/2008 16/34 JUDGMENT 11.Mr. Mardia has further submitted that Company Application No.97 of 2006 was moved by ICICI Bank Limited before this Court to obtain permission under Section 446 of the Companies Act, 1956 to continue with the Debenture Trustee Suit No. 434 of 2003 pending before the Bombay High Court. As per the order dated 01.08.2006 passed by this Court, it was represented by the Official Liquidator in the said case that it is not possible for him to appear in the proceedings there and defend the suit. However, if permitted, he would like to continue the services of the two Advocates appointed by the Company. This Court has accordingly permitted the Official Liquidator. However, the said case was never defended by the Official Liquidator nor any one on his behalf. He has, therefore, constrained to file the present application before this Court. He has strongly urged that as a Promoter / Shareholder and Ex-Chairman & Managing Director of the Company in liquidation and as also in his capacity as Guarantor of the Company in liquidation, he is interested in representing the case of COMA/69/2008 17/34 JUDGMENT the Company. However, permission prayed for in this regard was earlier denied by this Court. This Court having found that the Official Liquidator being custodian of the properties of the Company in liquidation, would represent the Company. However, representation was not made as expected by the Court. The orders which are issued are adversely affecting the Company in liquidation as well as its shareholders and all the persons interested in the Company in liquidation. The dismissal of the suit by the City Civil Court at Ahmedabad has also seriously prejudiced the interest of the Company and has prejudicially affected the applicant's interest. He has referred to the order passed by the Bombay High Court in Company Application (L) No. 553 of 2004 on 01.07.2004 wherein it is observed that if the Court does not get any cooperation from the Police in respect of the properties under the custody of the Court, the state will have to compensate for the losses suffered by such robberies and decoities committed to loot the property. He has, therefore, submitted that in a similar manner, for the negligent approach of the Official Liquidator, in COMA/69/2008 18/34 JUDGMENT the present case, the concerned Ministry should be held responsible to compensate the losses on account of the negligent and lackluster approach of the Official Liquidator of the Company in liquidation causing irreparable and irreversible loss to the Company in liquidation. He has, therefore, submitted that the reliefs prayed for in the present Judge's Summons may be granted. 12.During the pendency of this application, the applicant has also filed an additional affidavit for amendment in the prayers. Accordingly, he has sought the permission of this Court for himself or for his Advocate or Counsel to represent in all legal cases filed by and/or filed against the Company in liquidation and its Guarantors and to make further appeals, representations and all other steps for the protection of legal interest of the Company in liquidation at the cost of the applicant for which he would not claim any cost or reimbursement from the Official Liquidator. He has also sought the permission to take copies of the documents from the records of the Official Liquidator COMA/69/2008 19/34 JUDGMENT as and when necessary for the legal cases by and against the Company in liquidation with the permission of this Court. 13.Mr. Mihir Thakore, learned Senior advocate appearing with Mr. Sandeep Singhi for Singhi & Co. for ICICI Bank Limited has submitted that the present application is not maintainable and it is barred by principle of res judicata. The applicant has earlier moved Company Application No.285 of 2006 before this Court and more or less similar prayers are made in that application. While rejecting the said application, this Court in its order dated 01.08.2006 has observed that the Official Liquidator is the custodian of the property of the Company in liquidation once the order of winding up is passed and will exercise the powers as enumerated under Section 457 of the Companies Act, 1956. The Official Liquidator has not moved any application seeking any assistance of the applicant and, therefore, the applicant cannot be permitted to associate or assist in any manner to the Official Liquidator. The Court COMA/69/2008 20/34 JUDGMENT further observed that it is open for the applicant to appraise the Official Liquidator about the affairs of the Company or any assistance, if sought for by the Official Liquidator with regard to the pending proceedings. He has, therefore, submitted that more or less similar prayers are made in the present application and once this Court having rejected these prayers by a reasoned order, no indulgence should be shown by the Court and no relief can be granted as prayed for in the present application. 14.Mr. Thakore, while reiterating more or less same submissions has further submitted that upon winding up of a company, the Official Liquidator by virtue of his office becomes the liquidator of the company and all property, effects and actionable claims came to the custody and control of Official Liquidator. Accordingly, all litigations which may be initiated by the Company in liquidation or which are faced by the Company come within the control of the Official Liquidator. In fact, it is a statutory requirement that the power to institute and defend a suit etc. is that of the Official Liquidator. COMA/69/2008 21/34 JUDGMENT All the books of accounts or other documents of the Company in liquidation also come within the custody and control of the Official Liquidator. He has further submitted that for properly and appropriately maintaining and defending any action, it would be necessary to have recourse to the books of accounts and other documents of the Company in liquidation, which are statutorily within the custody and control of the Official Liquidator. Any permission as sought for, which may entitle the applicant to handle any litigation of the Company will seriously prejudice the powers and authority of the Official Liquidator and may also not be in the interest of the Company for the reasons, inter alia, that the books of accounts and documents cannot be trusted in the hands of the Ex-Promoters, including the applicant. Mr. Thakore has further submitted that there is no substance in the submission of the applicant that the applicant being Ex-Chairman and Managing Director of the Company and being conversant with the affairs of the Company, is better equipped to defend the proceedings initiated by various Banks and financial institutions and to support COMA/69/2008 22/34 JUDGMENT the counter claims filed by the Company in liquidation. There is also no substance in the submission that if the proceedings are not properly defended, it would cause serious prejudice to the Company in liquidation and various persons including other Secured and Unsecured Creditors as well as shareholders of the Company in liquidation. The applicant has no locus to move the present application seeking permission to pursue and defend the proceedings of the Company in place of the Official Liquidator once the Company is ordered to be wound up and it is only the Official Liquidator who can pursue or defend the proceedings filed against the Company in liquidation. There is no provision of law under which any person much less, the Ex-Promoter and Director, who is essentially responsible for the present state of affairs of the Company can be permitted to pursue or defend the litigation of the Company. Even if it is assumed that such application is maintainable, in that case, even looking to the facts and circumstances of the case and the manner of management of the Company by the applicant, is sufficient to persuade this Court not to COMA/69/2008 23/34 JUDGMENT exercise any such discretion in favour of the applicant. 15.Mr. Thakore has further submitted that there are certain litigations being faced by the Company where the promoters, including the applicant herein are guarantors