COMA/18820/2007 1/42 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION No. 188 of 2007 In COMPANY PETITION No. 147 of 2000 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 ? ========================================================= O.L. OF PIRAMAL FINANCIAL SERVICES LTD. - Applicant(s) Versus SHRI ASHISH PATEL & 3 - Respondent(s) ========================================================= Appearance : MR RM DESAI for Applicant(s) : 1, NANAVATI & NANAVATI for Respondent(s) : 1 - 4. ========================================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 10/11/2008 ORAL JUDGMENT 1. The official liquidator has taken out this Judge's Summons praying for permission of COMA/18820/2007 2/42 JUDGMENT this Court to execute the Consent Decree dated 20.11.1998 and 21.01.1999 passed by the City Civil Court in Civil Suit No.3111/1998 to Civil Suit Nos.3114/1998 and 3110/1998 respectively to recover and release the sum of Rs.7,07,18,00,000.00 Ps. due as on 01.01.2000 together with interest at the rate of 36% per annum from 01.01.2000 till payment or realisation. The official liquidator has also prayed for permission to execute the Consent Decree passed by the City Civil Court in Civil Suit No.3115 of 1998. The official liquidator has prayed for permission to take possession of the Securities being Office No.202 admeasuring 1100 sq. feet, Office No.203 admeasuring 1115 sq. ft. and Office No.204 admeasuring 890 sq. ft. respectively aggregating 3105 sq. ft. situated at 2nd Floor in the Building known as 'Swagat', C.G. Road, Ahmedabad 380 009 with undivided share in the open terrace and shares held by them, if any as members of Association. The official COMA/18820/2007 3/42 JUDGMENT liquidator has further prayed for the direction to the respondents to pay to the official liquidator, during the pendency and final disposal of this application, by way of mesne profit and / or compensation calculated at the rate of Rs.30.00 Ps. Per sq. ft. per month from 01.02.1999 till vacant and peaceful possession is handed over to official liquidator. Lastly the official liquidator has prayed for direction to the Sale Committee, appointed by this Court to sell the said Office Nos.202, 203, 204 on 2nd Floor of 'Swagat' Building in execution of the Consent Decree subject to confirmation and approval of this Court. 2. An affidavit is filed by Mr. Mahesh P. Shah, the Deputy Official Liquidator in support of the Judge's Summons. Mr. Roshan Desai, the learned Advocate appeared on behalf of the Official Liquidator. On notice being served on the respondents, M/s. Nanavati & Nanavati COMA/18820/2007 4/42 JUDGMENT have filed their appearance. An Affidavit is filed by Shri Ashish Patel on behalf of the respondent Nos.1, 2 and 3. 3. The brief facts giving rise to the present Application are that M/s. Piramal Financial Services Limited (PFSL, now in liquidation) was a Company incorporated and registered under the Companies Act, 1956. Reserve Bank of India filed a Company Petition No.147 of 2000 praying that PFSL be wound up under the provisions of Section 45 of Reserve Bank of India Act. This Court admitted the said Petition on 20.10.2000 and appointed the Official Liquidator attached to this Court as the provisional liquidator of PFSL. The said Company was thereafter wound up by an Order dated 20.03.2001 and the official liquidator appointed as provisional liquidator was appointed as liquidator of the Company with all usual powers under the provisions of the Companies Act, 1956. This Court vide its COMA/18820/2007 5/42 JUDGMENT Order dated 20.07.2001 passed in Company Application No.44 of 2000 directed the Official Liquidator to take possession of the properties and assets as mentioned in Schedule 'A' of the report of the Official Liquidator dated 12.07.2001 in Company Application No.44 of 2001. 4. The respondents in this Application are developers of several properties, including property being 'Swagat' Building on the piece and parcel of land on Final Plot No.405 of Town Planning Scheme No.3 (Varied) admeasuring 1999.44 sq. mtrs. Situate, lying and being at Mouje Changispur, City Taluka in the Registration District and Sub District of Ahmedabad. The respondents obtained a loan from PFSL. By an Agreement dated 14.06.1996, properties of Radhe Estate Developers were given as collateral security for the said loan. However it is not clarified as to what is the proper security given to PFSL. Radhe COMA/18820/2007 6/42 JUDGMENT Estate Developers and Shri Ashish Patel who guaranteed the amount due and payable by Radhe Estate Developers under the Loan Agreement committed a default in payment of the amount due and payable. In view of the default committed in payment of the amount due and payable by the respondents, the Company filed Civil Suits in City Civil Court, Ahmedabad being Civil Suit Nos.3110 of 1998 to 3115 of 1998 for judgment and decree for the amount mentioned in the plaint in each of suits together with interest thereon at the rate mentioned in the plaint. Para 3 of the Plaint gives details of the amount lent and advanced by the Company to the respondents. Negotiations took place between the Company and respondents and ultimately settlement was arrived at between the parties and Consent terms signed by the parties were filed in each of the suits and it was agreed that decree in terms of Consent terms be passed. Accordingly Consent Decree was COMA/18820/2007 7/42 JUDGMENT passed in each of these Suits on 20.11.1998 and 21.01.1999. By the said Consent Decrees, it was provided that the defendants as well as associate concerns of Defendant No.2, i.e. Shri Ashish Patel would abide by Decree of Injunction regarding the property given as Security to the Plaintiff Company for its financial assistance granted and shall be released when the defendants make full payment. Decree was also passed against Shri Ashish Patel. By the said decree, defendants agreed to pay the Decretal dues in 36 monthly installments. The charge was created on Offices Nos.202,203,204 and other properties as mentioned in the Decree. It is provided that the defendants have to pay a sum of Rs.707.18 Lakhs, the total outstanding as on 01.01.2000 with interest at the rate of 3% per month, i.e. 36% per annum. The defendants have given possession of the Security to the Company. COMA/18820/2007 8/42 JUDGMENT 5. It appears from the records that Shri Ashish Patel and his Associates and his group companies purchased substantial shares of Company somewhere in January 1999 and Shri Ashish Patel was appointed as Chairman and Managing Director of the Company on 07.02.1999. During the tenure of Shri Ashish Patel as Chairman and Managing Director of the Company, he took possession of Office Nos.202,203 and 204 and started using the same as well as permitting the group Companies as Office for their own benefit contrary to the right of the Company. 6. In the above background of the matter, the Offices Nos.202, 203 and 204 duly charged in favour of the Company being the Security for the loan advanced by the Company are now available to the Official Liquidator for release of the dues of the Company in liquidation. When the representative of the Official Liquidator desired to have COMA/18820/2007 9/42 JUDGMENT inspection of the properties of the Company namely Office Nos.202, 203 and 204 at 'Swagat' Building, objection was raised on behalf of the respondents to hand over the possession and to take inspection and were informed that Office Nos.202, 203 and 204 have been purchased by them and they are owners of the said Offices. 7. It is also on record that Shri Ashish Patel filed an Affidavit-in-reply dated 11.10.2003 in O.L.R. No.56 of 2003 wherein it was stated that Shri Ashish Patel and his family members and his associates decided on 07.09.1999 to hand over controlling interest in the Company to Vellor Finstock Private Limited (VFPL), Mumbai. It was also averred that pursuant to Memorandum of Understanding dated 08.09.1999, by which it is stated that partial consideration would be paid by VFPL. Alongwith the said Affidavit, an Agreement dated 07.09.1999 which was entered into COMA/18820/2007 10/42 JUDGMENT between Shri Ashish Patel and others on the one hand and VFPL on the other hand was produced. Thereafter, additional affidavit dated 01.12.2003 was filed by Shri Ashish Patel in O.L.R. No.56 of 2003 wherein it is clearly stated that Radhe Estate Developers, a Partnership Firm took a loan from PFSL on 14.06.1996 and properties of Radhe Estate Developers were given as collateral security for the said loan. It is also averred that Memorandum of Understanding was entered into on 07.09.1999 between Shri Ashish Patel and his associates as Seller and VFPL as buyer. Clause 2 of the said Memorandum of Understanding dated 07.09.1999 reads as under:- “Simultaneously buyer has stipulated and seller has consented to discharge total dues of Radhe Group of Companies (Borrower) aggregating to Rs.671.37 Lakhs payable to Piramal Financial Services Limited on account of loan / hire purchase financing and for advance for booking of property maintained in the books of Piramal Financial Services Limited as stocks of realty, COMA/18820/2007 11/42 JUDGMENT loans or advances and discharge the borrower of all their obligations on receipt of the said sum in full and final settlement of all their dues payable to Piramal Financial Services Limited and also the buyer agrees to withdraw for and on behalf of Piramal Financial Services Limited all the pending suits including the Decretal orders instituted / passed against the seller and its group Companies / firms at the instance of Piramal Financial Services Limited. Further buyer also agrees to unconditionally return all documents of title and other documents / papers issued by Radhe Group of Companies / Firms in favour of Piramal Financial Services Limited for the purpose of creating charge in favour of the later.” 8. It was also averred that in terms of the aforesaid Agreement the buyer VFPL undertook to pay liability of Radhe Group of Companies of Rs.671.37 Lakhs to PFSL. 9.Another Memorandum of Understanding was executed on 08.09.1999 between Shri Ashish Patel and his associates namely, Ms. Jahnavi Ashish Patel, Ms. Madhuben P. Patel, Ms. Nikiben Miteshbhai Shah, Mr. Dilipbhai S. COMA/18820/2007 12/42 JUDGMENT Trivedi, Mr. Prafulbhai C. Patel and Ms. Pinki R. Bhansali and Patel Agrofarms Pvt. Ltd. as party of the First Part, Radhe Developers (India) Ltd., Radhe Estate Developers and Radhe Finance as party of the Second Part and Vellor Finstock Private Limited, a party of the Third Part and Piramal Financial Services Limited as party of the Fourth part. On perusal of the said Memorandum of Understanding, it is clear that the party of the Second Part, i.e. Radhe Developers (India) Ltd., Radhe Estate Developers and Radhe Finance are debtors of the Party of the fourth Part and Party of the fourth Part, i.e. the Company is holding various securities in respect of loans given to the party of the Second Part. By way of loans and advances, the total debt was receivable from the party of the Second Part being Rs.671.37 Lakhs as on 31.03.1999. It is also recited that party of the Second Part and party of the Fourth Part had entered into COMA/18820/2007 13/42 JUDGMENT Consent terms and the Court has passed Consent Decree in respect of Civil Suit No.3110 to 3115 of 1998 on 20.11.1998 and 21.01.1999 for payment of loans. It is also recited that the party of the Third Part, i.e. Vellor Finstock Private Limited is desirous of taking up the liability of the party of the Second Part to the party of the Fourth Part and for that purpose, the Memorandum of Understanding is entered into. By the said Memorandum of Understanding, it is provided that on party of the Third Part taking up the liability of Rs.671.37 Lakhs of the party of the Second Part towards the party of the Fourth Part, the party of the Second Part is discharged of its liabilities and obligations of the party of the Fourth Part of Rs.671.37 Lakhs. It was also provided that party of the Third Part expressly confirms without any demur or dispute in future of having taken up the liability of Rs.671.37 Lakhs of the party of COMA/18820/2007 14/42 JUDGMENT the Second Part and owes an identical amount of Rs.671.37 Lacs to the party of the Fourth Part. 10. It was also provided that the party of the Third Part agreed to offer the properties bearing Survey No.12/1 situate at Villupate Village, Kodaikanal, Tamil Nadu to the extent of 13.5 acres in favour of the party of the Fourth Part as security to the latter's satisfaction which would cover the party of the Third Part's liability of Rs.671.37 Lakhs. It was also agreed that the Party of the Third Part is the Holding Company of the party of the Fourth Part. In the said agreement, reference has been made to Para 2 of the Recital that the party of Second Part is a debtor to the party of the Fourth Part and the latter is holding various securities in respect of the amounts given to the party of the Second Part by way of loans and advances, the total debt receivable from the COMA/18820/2007 15/42 JUDGMENT party of the Second Part as on 31.03.1999. 11. It has also come on record by way of an intimation given by Special Economic Offence Wing (C.I.D. Branch) that when they visited Kodaikanal, Tamil Nadu to ascertain the location of land bearing Survey No.12/1 situated at Villupate Village, Kodaikanal, Tamil Nadu to the extent of 13.5 Acres, it was found that no such land exists. 12. It appears from the copy of the plaint forming part of the Consent Decree that Office premises bearing Nos.202, 203 and 204 in 'Swagat' Building situated at C.G. Road, Ahmedabad alongwith other properties are given as security in the said suits. Radhe Estate Developers and Shri Ashish Patel are defendants in all these Suits. From the records available with the liquidator, it was ascertained that possession of the said securities was not with the official liquidator and hence the liquidator has COMA/18820/2007 16/42 JUDGMENT sought the permission to take possession of the said security from the respondents and / or any person occupying the same and to sell the same in satisfaction of the dues payable by respondents to the Company in liquidation. 13.Mr. Roshan Desai, the learned Advocate appearing for the Official Liquidator submitted that VFPL is non-existing Company and the liquidator is not able to locate the whereabouts of the said Company. Liquidator has tried to locate the whereabouts of its Directors but he has not been able to locate them. He has further submitted that on winding up order being passed, the Directors of the Company are required to file a Statement of Affairs. However such Statement of Affairs is not filed and hence the liquidator has filed Criminal Case No.12 of 2004 for non-filing of Statement of Affairs. In the said proceedings three persons are not being served with notice inspite of several COMA/18820/2007 17/42 JUDGMENT efforts made by the liquidator. He has further submitted that the Agreement dated 08.09.1999 provides that Securities are to be released by PFSL since liability is taken over by the holding company, VFPL. The draft of the said agreement was approved by the Directors of PFSL at the meeting held on 07.09.1999 on which date Shri Ashish Patel and his associates were Directors of the Company in liquidation. He has therefore submitted that such a resolution is void ab initio as any transaction relating to immovable property of Rs.100/- or more is to be done by a Registered Document. Release of Security is a transaction which is required to be completed by a Registered Document. Since there is no registered document releasing security, such a transaction is void ab initio. 14. Mr. Desai has further submitted that in the O.L.R. Of Piramal Financial Services Limited COMA/18820/2007 18/42 JUDGMENT vs. Dena Bank reported in 122 Comp. Cases 967, this Court has referred to the Memorandum of Understanding dated 07.09.1999 and observed that simply by taking over the liability, it cannot be said that the amount is paid to the Creditor. He has further submitted that by Consent Degree, Radhe Developers (I) Limited, Radhe Estate Developers (Partnership Firm) and Shri Ashish Patel agreed that a Decree for Injunction is to be passed and by such decree of injunction, they are restrained from allotting, re-allotting, transferring or disposing off / dealing in any manner and also from parting with possession of properties given in Security to the plaintiff, the description of which is given in the plaint and are further restrained from disturbing the possession of the property till full and final payment to the Company as per the Consent Decree. He has further submitted that the amount due to the Company COMA/18820/2007 19/42 JUDGMENT in liquidation is not paid and the charge created in favour of the Company in liquidation is not satisfied and it still subsists. Securities of Flats and Offices mentioned in the plaints are available to the Company in liquidation and Company in liquidation is entitled to take possession of the said securities. He has therefore submitted that the prayers made in the Judge's Summons are required to be granted and the application be allowed accordingly. 15. Mr. S.I. Nanavati, Learned senior counsel appearing for the respondents on the other hand has strongly raised objection against the maintainability of the present application and submitted that none of the prayers made in the present application deserves to be granted by this Court in favour of the official liquidator. He has submitted that the official liquidator has filed this Application with the intention to COMA/18820/2007 20/42 JUDGMENT misguide this Court and suppress the material facts which are already on record and within the knowledge of the official liquidator. The Consent Decrees passed in all the Suits have been satisfied and necessary pursis was filed in the City Civil Court in all the Suits and the Civil Court has recorded the satisfaction of decrees by its Order dated 21.09.1999, a copy of this pursis and the order passed thereon are filed by the respondent, Shri Ashish Patel, one of the respondents alongwith his affidavit filed in support of summons for judgments taken out in Company Application No.135 of 2007 against the official liquidator. These facts have been purposefully concealed and hence the application deserves to be rejected on the ground of suppresio falsie. He has further submitted that on 07.02.1999, Shri Ashish Patel and his family members and his associates acquired controlling interest and management of PFSL from M/s. Electric Control COMA/18820/2007 21/42 JUDGMENT Gear India Limited. He was appointed as Chairman and Managing Director of Piramal Financial Services Limited from 07.02.1999. On 07.09.1999, Shri Ashish Patel, his family members and associates transferred the controlling interest in the Company to VFPL, Mumbai and thereupon ceased to be in the Management of the Company and he resigned as Chairman and Managing Director with effect from 07.09.1999. On 07.09.1999, an Agreement recording the transfer of shares and liability was executed between Shri Ashish Patel, his family members and associates and the said VFPL recording the terms of transfer of shares and Management. On the next day, i.e. 08.09.1999 another Agreement came to be executed between Shri Ashish Patel, his family members and associates, the said VFPL and the said PFSL. By virtue of the said Agreement, VFPL took up the liability of Shri Ashish Patel and his associates amounting to Rs.671.37 Lakhs payable to PFSL and the same COMA/18820/2007 22/42 JUDGMENT was agreed upon by PFSL and Shri Ashish Patel and his associates were relieved from their obligations to pay the amount due and payable. Thus, on 08.09.1999 the liability of Shri Ashish Patel and his associates stood crystallized at Rs.671.37 Lakhs. Thus the liability stood fully discharged on 08.09.1999 in view of the said Agreement. In furtherance of the said Agreement dated 08.09.1999, PFSL issued a 'No Due Certificate' which communicates that the liability of Shri Ashish Patel and his associates to PFSL amounting to Rs.671.37 Lakhs stood fully discharged. In the said Certificate, PFSL agreed to return and release all the documents of tiles and other deed and papers handed over by Shri Ashish Patel and his associates for the purpose of creating charge as security for various loans / advances for booking of properties etc. PFSL agreed to withdraw unconditionally and irrecovably all pending suits including COMA/18820/2007 23/42 JUDGMENT decretal orders instituted / passed against Shri Ashish Patel and his associates and the said No Due Certificate was to be treated for all intents and purposes as 'No Due Certificate' by PFSL to Shri Ashish Patel and his Associates. Thereafter necessary pursis was filed in the Ahmedabad City Civil Court, Ahmedabad in Civil Suit No.3110 of 1998 to 3115 of 1998 recording the satisfaction of the Consent Decree in toto. The City Civil Court recorded the said pursis stating that the decree passed in the concerned suit stands fully satisfied and there remains nothing due and payable by the defendants to the plaintiff and the charge created on the property stood relinquished. He has therefore submitted that in view of this pursis and the Agreements, PFSL relinquished all its charges on the properties offered as security for the advances made by the Company to Shri Ashish Patel and his associates and from that day, all the properties became free COMA/18820/2007 24/42 JUDGMENT from the charge of PFSL. He has further submitted that the decision of this Court referred to and relied upon by the liquidator is not applicable to the facts of the present case and hence no adverse inference can be drawn against the respondents. He has further submitted that the Application preferred by the official liquidator deserves to be rejected with compensatory costs. 16. Mr. Nanavati has further submitted that there is no question of execution of a decree which is already satisfied. He has further submitted that as contemplated under O.21, Rule 2 of C.P.C., payments by adjustment were made out of the court and the same has been admitted by the decree holder as required under Clause (C) of Rule 2 A of O.21 of CPC. Mr. Nanavati further submitted that this Court cannot go beyond the scope of the decree. Even otherwise, there is no prayer for cancellation of the Order dated COMA/18820/2007 25/42 JUDGMENT 21.09.1999. He has further submitted that the Agreements dated 07.09.1999 and 08.09.1999 were declared illegal in collateral proceedings and it has no effect on the present proceedings. He has further submitted that the Resolution was duly passed by PFSL on 07.09.1999 and it was placed on the record of Company Application No.135 of 2007 at Page 236. Mere non-affixing of the common seal of the Company does not invalidate the resolution. He has further submitted that the Order passed by the Trial Court on 21.09.1999 is a judicial order. It has become final and parties have given effect to the said order and parties are bound by it. Unless it is set aside after following due process of law, the Official Liquidator is not entitled to any relief in the present proceedings. 17. Having heard learned advocates appearing for the respective parties and having gone COMA/18820/2007 26/42 JUDGMENT through the contents of the application as well as affidavit filed on behalf of the respondents and having considered the relevant statutory provisions as well as the authorities on the subject, the Court is of the view that none of the contentions raised on behalf of the respondents bear any substance or merits and the same deserves to be rejected. The main thrust of the argument canvassed on behalf of the respondents by Mr.Nanavati is that the Competent civil Court