OJA/156/2008 1/18 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 156 of 2008 In OFFICIAL LIQUDATOR REPORT No. 218 of 2008 In COMPANY APPLICATION No. 97 of 2006 With CIVIL APPLICATION No. 304 of 2008 For Approval and Signature: HONOURABLE MS. JUSTICE R.M.DOSHIT & HONOURABLE MR.JUSTICE K.M.THAKER ========================================================= 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 civil judge ? ========================================================= ICICI BANK LIMITED - Appellant(s) Versus O L OF MARDIA CHEMICALS LTD (IN LIQUIDATION) & 2 - Opponent(s) ========================================================= Appearance : Mr. Mihir Joshi Senior Advocate with Mr. Sandeep Singhi for SINGHI & CO for Appellant(s) : 1, Mr. Roshan Desai with MS AMEE YAJNIK for Official Liquidator Opponent(s) : 1, None for Opponent(s) : 2, Mr. Rasiklal S. Mardia, Opponent No.3 IN-PERSON. ========================================================= CORAM : HONOURABLE MS. JUSTICE R.M.DOSHIT and HONOURABLE MR.JUSTICE K.M.THAKER 24-26th November, 2008 OJA/156/2008 2/18 JUDGMENT ORAL JUDGMENT (Per : HONOURABLE MS. JUSTICE R.M.DOSHIT) This Appeal under Section 483 of the Companies Act, 1956 has been preferred by the ICICI Bank Ltd., (hereinafter referred to as 'the plaintiff'), a secured creditor of Mardia Chemicals Limited (a company in liquidation) (hereinafter referred to as 'the Company') against the order dated 22nd October, 2008 made by the Company Court on Official Liquidator's Report No. 218 of 2008. 2. The plaintiff is the secured creditor of the Company. The plaintiff has instituted Debenture Trustee Suit No. 434 of 2003 in the High Court of Judicature at Bombay against the Company for recovery of Rs. 66,16,73,781/-. Pending the said suit by order dated 13th August, 2004 made on Notice of Motion the Court has appointed Court Receiver to take possession of the assets of the company. It is directed, inter alia, that, “However, the Court Receiver shall not issue an advertisement for sale of the units unless and until an affidavit is filed on behalf of the plaintiffs communicating its decision OJA/156/2008 3/18 JUDGMENT in relation to the election of remedy. The Court Receiver shall, after receiving affidavit from the plaintiffs, submit report to the Court and obtain suitable orders from the Court.” It appears that till date the plaintiff has not filed affidavit as directed. Pursuant to the said order, the Court Receiver has taken over the possession of the assets of the company situated at Mardianagar plant, Surendranagar. Another set of assets of the Company situated at Vatva, Ahmedabad has been taken over by the plaintiff in the proceedings taken under The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [hereinafter referred to as 'the Securitization Act']. 3. Pending the suit before the Bombay High Court, by order dated 3rd August, 2005 made by the Company Court in Company Petition No.37 of 1998, the Company is ordered to be wound up. The Official Liquidator has been appointed as the Liquidator of the Company. The Official Liquidator has been directed to take possession of the assets and OJA/156/2008 4/18 JUDGMENT properties of the company other than Vatva and Surendranagar units. In view of the order of winding up made against the Company, the plaintiff approached the Company Court under Section 446 of the Act for permission to continue the suit pending before the Bombay High Court. By order dated 1st August, 2006 made by the learned Company Judge on Company Application No. 97 of 2006, the plaintiff has been permitted to continue the said suit before the Bombay High Court “subject to provisions of Sections 529, 529A of the Companies Act, 1956 and associating Official Liquidator with the proceedings and final outcome and also further order that may be passed by this Court.” Pursuant to the aforesaid order, the Official Liquidator has joined in the suit pending before the Bombay High Court. He is represented by his attorney. In the said suit, on 7th May, 2008 the Court Receiver submitted a report to seek directions; “(a) that Shri Rasiklal S. Mardia, Ex-chairman and Managing Director of 1st Defendant Company (in Liquidation), be directed to submit list of missing movables/machinery to enable the Panel Valuer to physically verify the same. OJA/156/2008 5/18 JUDGMENT (b) whether alternatively a fresh inventory of movables and machinery be carried out and comply the order dated 29th November 2007. (c) In the event of any theft and/or missing items are found at the time of verification of the movables machineries the Court Receiver and/or aggrieved parties be permitted to invoke Indemnity furnished by M/s. Check Mate Services Ltd., the Security Agency deployed by Plaintiffs to safeguard the factory premises. (d) xxx xxx xxx (e) xxx xxx xxx.” The said report was objected to on behalf of the Official Liquidator and also by the party-in-person, Shri Rasiklal S. Mardia, the former Chairman and Managing Director of the Company and the guarantor to the plaintiff. The said report was disposed of on 19th June, 2008 by the Bombay High Court [Coram: Smt. Roshan Dalvi, J.]. The Hon'ble Court noted the complaint of the party-in-person in respect of the pilferage of some of the assets of the Company, i.e. of Surendranagar unit. The learned Judge was pleased to observe that; “The fact that for four years the Court Receiver had to labour over his duty itself OJA/156/2008 6/18 JUDGMENT shows that the order dated 13.8.2004 is far from compliance. The order necessitates the ultimate sale of the property. The prayers prayed for by the Court Receiver need not be granted. The Court Receiver shall forthwith proceed with the work of sale of all the units of the 1st Defendant-Company.” This order was carried in appeal by the party-in-person before the Division Bench of the Bombay High Court in Appeal (Lodging) No. 375 of 2008. The Division Bench of the Bombay High Court [Coram: Swatanter Kumar, C.J. And A.P. Deshpande, J.] by judgment pronounced on 29th August, 2008 confirmed the order of the learned Single Judge. The Bench observed that, “We are of the considered view that the schedule submitted by the Court Receiver needs to be modified to a limited extent that the period of inspection of the plant should be over a large period than specified. The schedule is thus specified as under;” xx xx xxx xxx xxx xx xx xx xxx xxx xxx xx The above referred schedule commenced from the date of advertisement to be published on 7th September, 2008 to 17th September, 2008, the date set for auction OJA/156/2008 7/18 JUDGMENT sale to be held in the office of the Court Receiver, High Court of Bombay. The said order further provided that :- “(a) The Court Receiver shall ensure that the property is put to auction in terms of the orders of the Court dated 13th August 2004 and 19th June 2008 which have already attained finality. (b) The Court Receiver shall strictly adhere to the schedule of sale mentioned in this order. (c) The Court Receiver shall make every effort to confirm if there are any properties of the Company missing from the site in question by verifying the inventory already prepared. (d) Strict arrangement shall be made henceforth by the concerned persons for employing stringent security to ensure that no damage is done to the property and no property is moved from the premises in question till is put to sale. (e) The Court Receiver shall also take steps in accordance with law if any property is found to be missing and pursue the matter with the concerned Police Station. (f) The Official Liquidator of the Company shall fully co-operate with the Court Receiver of this Court and ensure compliance of the orders OJA/156/2008 8/18 JUDGMENT of the Court.” This order made by the Bench of the Bombay High Court was further challenged before the Hon'ble Supreme Court in Special Leave to Appeal(Civil) No(s). 22456 of 2008. The said Appeal came to be disposed of on 19th September, 2008. The Hon'ble Supreme Court confirmed the order of the Bombay High Court, but observed that, “At the time of confirmation of sale it would be open to the petitioner herein to produce the valuation report as well as a list of inventory of items which according to the petitioner exists. It would be open to the High Court at the time of confirmation to consider the valuation report and the items which exist at site. In that regard the Court Receiver can assist the High Court by preparing its inventory, a copy whereof may be given to the petitioner. The High Court can compare the inventory to be submitted by the petitioner herein, with the inventory to be submitted by the Court Receiver. OJA/156/2008 9/18 JUDGMENT The Court Receiver can also call for its own valuation report from its panel of valuers, a copy whereof may be given to the petitioner herein. We make it very clear that at the time of confirmation of sale it would be open to the petitioner herein to argue on the valuation aspect of the sale. Subject to what is stated above, Special Leave Petition stands dismissed.” 4. Since the aforesaid order, we are informed, the Court Receiver appointed by the Bombay High Court did proceed with the sale of the assets of the Company as directed. The offer of Rs. 15 crores received by the Court Receiver was not acceptable to the parties. The Court Receiver, therefore, submitted Report No. 327 of 2008 dated 23rd September, 2008 in the pending Suit No. 434 of 2003. The Court Receiver sought directions as under; “(a) What step the Court Receiver should take on the offer of Rs. 15.00 Crores received from OJA/156/2008 10/18 JUDGMENT M/s. I.B. Trading Pvt. Ltd., for purchase of movable and immovable properties set out in terms and conditions of sale dated 1st September 2008; (b) Alternatively, whether the Court Receiver should conduct fresh auction by inserting correct description of movable and immovable properties in the advertisements and terms and conditions of sale; (c) What further steps the Court Receiver should take on report dated 19th September 2008 submitted by panel Valuer in respect of missing movables situated at M/s. Mardia Chemicals Ltd., Mardia Nagar, Sitagarah, P.L. Doliya, Taluka-Sayla, Dist.Surendranagar, Gujarat; (d) What step the Court Receiver should take on the correspondence entered into by the Official Liquidator, High Court of Gujarat. (e) What step the Court Receiver should take with regard to dilapidated condition of structures at M/s. Mardia Chemicals Ltd. Mardia Nagar, Sitagarah, P.L. Doliya, Taluka-Sayla, Dist.Surendranagar, Gujarat, as there is no funds available in the suit account and is in deficit; (f) That the Plaintiffs being carrier of OJA/156/2008 11/18 JUDGMENT proceedings be directed to deposit Rs. 10,000/- to meet miscellaneous expenses of the Court Receiver for the time being. (g) xxx xxx xxx (h) xxx xxx xxx.” On 25th September, 2008 the Hon'ble Court [Coram: Smt. Roshan Dalvi, J.] made order on the said Report. The Court directed the sale to be conducted afresh. On demand made by the party-in-person for a copy of the valuation report, the Court observed that; “The Valuation Report need not be opened post-haste. Since now fresh bids are required by all the parties, which aspect was not brought to the notice of the Supreme Court, the directions would have to be complied after the fresh bids are obtained as seen from the order of the Supreme Court. However, if the Managing Director of the Company in liquidation/guarantor desires the copy of the Valuation Report to be furnished to him earlier than the date of the fresh bids, he may apply for further directions from the Supreme Court. The Court Receiver shall give copy of the Valuation Report to OJA/156/2008 12/18 JUDGMENT him as soon as specific directions are obtained.” 5. It appears that the Official Liquidator and the party-in-person were not satisfied with the conduct of the sale proceedings carried out by the Court Receiver at Bombay. The Official Liquidator, therefore, took out Report No. 218 of 2008 in Company Application No. 97 of 2006 to put-forth his grievances before the learned Company Judge and for appropriate directions. After hearing the parties, the learned Company Judge made the impugned order dated 22nd October, 2008. By the impugned order, the learned Company Judge has issued directions; “(1) The Court Receiver is hereby directed to place all details relating to the entire sale procedure prescribed by him pursuant to the order passed by the Bombay High Court. (2) To place inventory report and valuation report of the properties in question on the record of this case. (3) To request Bombay High Court and to obtain an order fro inviting offers, processing them at Ahmedabad in consultation with Official Liquidator and after holding inter-se bidding between the bidders to place appropriate report OJA/156/2008 13/18 JUDGMENT before this Court. (4) The respondent No.1 – Bank/the original plaintiff before the Bombay High Court is hereby directed to comply with the order dated 3.8.2005 whereby the Bank was directed to place on record of this Court any development with regard to the sale of properties and/or realization, if any, if this part of the direction is not stayed by the Division Bench of this Court in Appeal which is filed by the said Bank and which is stated to have been pending before the Division Bench. (5) The sale that may take place shall not be confirmed without prior permission of this Court. “ Therefore, the present Appeal. 6. Pursuant to the above order dated 22nd October, 2008, the Court Receiver has submitted Report No. 396 of 2008 before the Bombay High Court for directions; “a) Whether the Receiver should place the valuation report of the suit properties which is under the seal and custody of the Court Receiver on the record of the Hon'ble Gujarat High Court in terms of Order dated 22nd October, 2008 passed by the Hon'ble Gujarat High Court. OJA/156/2008 14/18 JUDGMENT b) Whether the Court Receiver should conduct the public auction in terms of the order dated 25th September, 2008 passed by this Hon'ble Court as well as the order dated 29th August, 2008 passed by the Appeal Bench of this Hon'ble Court and the order dated 19th September, 2008 passed by the Hon'ble Supreme Court and place the report after conducting the bidding for confirmation of sale before this Hon'ble Court as per the practice and procedure of the office of the Court Receiver; OR c) In the alternative whether the Court Receiver should conduct the sale in consultation with the Official Liquidator attached to the Hon'ble Gujarat High Court by inviting offers, processing them at Ahmedabad and after holding inter-se bidding between the bidders place appropriate report before the Hon'ble Gujarat High Court; d) What steps the Court Receiver should take in respect of the directions contained in para 3(5) of the order dated 22nd October, 2008 passed by the Hon'ble Gujarat High Court. e) xxxxx f) xxxxx.” We are informed that the said Report is awaiting hearing and further directions before the Bombay High OJA/156/2008 15/18 JUDGMENT Court. 7. Learned advocate Mr. Joshi has appeared for the plaintiff, ICICI Bank. He has assailed the impugned order dated 22nd October. 2008. He has submitted that the possession of the assets of the company in its Vatva unit has been taken over by the appellant under the powers conferred by the Securitization Act. The possession of the assets of the Company at its Surendranagar unit has been taken over by the Court Receiver under the order of the Bombay High Court. In the submission of Mr. Joshi, the impugned order contravenes the above referred order of the Bombay High Court dated 29th August, 2008; confirmed by the Hon'ble Supreme Court. The impugned order strikes at the very authority of the Bombay High Court to make order in the suit pending before it. He has submitted that the Company Court has permitted the plaintiff to continue with the suit pending before the Bombay High Court subject to provisions of Section 529 and 529A of the Act. The Company Court is, therefore, not justified in making the impugned order. 8. The Appeal is contested by the Official OJA/156/2008 16/18 JUDGMENT Liquidator. Learned advocate, Mr. Roshan Desai has appeared for the Official Liquidator. He has submitted that the directions issued by the learned Company Judge are against the Court Receiver. The Court Receiver has complied with the said directions by submitting the above referred Report No. 396 of 2008. No directions are issued against the plaintiff. The plaintiff has no locus standi to challenge the impugned order. The impugned directions, in no manner, interfere with the proceeding pending before the Bombay High Court. 9. The Appeal is contested by the respondent No.3. He has taken us through the entire record. He has submitted that the impugned order in no way interferes with the order of the High Court of Bombay or of the Hon'ble Supreme Court. The said order, therefore, need not be interfered with. He has also made grievance in respect of the plaintiff's not filing affidavit for election of remedy, as directed by order dated 13th August, 2004; pilferage of the assets of the Company and also about not placing valuation of the assets before the Bombay High Court. He has submitted that until the plaintiff files affidavit of election of remedy, and the Court makes OJA/156/2008 17/18 JUDGMENT further order the Court Receiver has no authority to sell the assets of the Company. In absence of the valuation of the assets or without fixing the up-set price, it would not be possible to fetch the best price or to ascertain whether or not the offers received are adequate. 10. We are unable to agree with Mr. Joshi. The apprehension that the impugned order is made in contravention of the orders made by the Hon'ble Supreme Court and the Hon'ble Bombay High Court is, in our opinion, imaginary. The impugned order in no manner contravenes the orders made by the Hon'ble Bombay High Court or the order made by the Hon'ble Supreme Court, nor does it make inroads in the jurisdiction of the Bombay High Court to conduct the suit pending before it. Once the Company is ordered to be wound up, the Company Court is paramount and is custodia legis of the assets of the Company. We do not make any exception about the impugned order dated 22nd October, 2008 made by the learned Company Judge. 11. For the aforesaid reasons, the Appeal is dismissed. The Civil Application is disposed of. OJA/156/2008 18/18 JUDGMENT [ Ms. R.M. Doshit, J. ] [ K.M. Thaker, J. ] rmr.