IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION Nos. 99 and 524 of 1997 with COMPANY APPLICATION Nos.189, 205 & 559 of 1997 with COMPANY APPLICATION No 403 of 1998 All in COMPANY PETITION No 66 of 1988 For Approval and Signature: Hon'ble MR.JUSTICE H.L.GOKHALE Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? Yes 2. To be referred to the Reporter or not? Yes 3. Whether Their Lordships wish to see the fair copy of the judgement? No 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? No 5. Whether it is to be circulated to the Civil Judge? No -------------------------------------------------------------- RUSHVI ESTATE & INVESTMENTS PVT.LTD. Versus O.L. OF SHRI AMBICA MILLS LTD. -------------------------------------------------------------- Appearance: MR KG VAKHARIA Sr Advocate with MR TUSHAR MEHTA and MR DS NANAVATI for Rushvi Estate & Investments Pvt. Ltd. MR SN SOPARKAR with MR DS NANAVATI for Rutuja Estate & Investments Pvt. Ltd. MR MG NAGARKAR for Jain Corporation. MR ASHOK L SHAH for Official Liquidator (Resp. No.1) MR MB BUCH for ICICI MR RM DESAI for IDBI MR JT TRIVEDI for Bank of India & Union Bank of India MR THAKER for Oil & Natural Gas Commission MR DS VASAVADA for Textile Labour Association -------------------------------------------------------------- CORAM : MR.JUSTICE H.L.GOKHALE Date of decision: 26/11/98 ORAL JUDGEMENT Company Application No.99 of 1997 and Company Application No.524 of 1997 are filed by one Rushvi Estate & Investment Pvt. Ltd. (hereinafter referred to as Rushvi Ltd.). Company Applications Nos.189 of 1997, 205 of 1997 and 559 of 1997 are filed by one Rutuja Estate & Investment Pvt. Ltd. (hereinafter referred to as Rutuja Ltd.) and Company Application No.403 of 1998 is filed by one Jain Corporation. All these applications are filed against the Official Liquidator of M/s. Shri Ambica Mills Ltd. which is in winding up. Various secured creditors have also joined in these proceedings as respondents. 2. Mr.K.G.Vakharia Senior Advocate with Mr.Tushar Mehta with Mr.D.S.Nanavati have appeared for Rushvi Ltd. Mr.S.N.Soparkar with Mr.D.S.Nanavati have appeared for Rutuja Ltd. and Mr. M.G.Nagarkar has appeared for Jain Corporation. Mr.Ashok L.Shah has appeared for the Official Liquidator. Mr.M.B.Buch has appeared for ICICI; Mr.R.M.Desai has appeared for IDBI; Mr.J.T.Trivedi has appeared for Bank of India and Union Bank of India who are all secured creditors. Mr.Thakar has appeared for ONGC which has also a substantial claim against the company in winding up and Mr.D.S.Vasavada has appeared for the Textile Labour Association which represents the workers of the erstwhile Mill Company. 3. Company Petition No.66 of 1988 was filed on 12th April 1988 for winding up Shri Ambica Mills Ltd. During the pendency of that petition, the affairs of this company were investigated before the Board of Industrial Finance & Reconstruction (BIFR) and after obtaining the opinion from the said Board, winding up order came to be passed on 17.1.1997. This Mill Company is having its properties amongst others situated at four places:- (1) Unit No.1 which is situated in the Kokhra area of Ahmedabad (We are concerned with the property of this Unit in all these applications). (2) Unit No.2 which is situated near Railway Line. (3) A textile mill at Baroda, and (4) M/s. Ambica Tubes Division situated at Vatva. 4. After passing of the winding up order, the Official Liquidator has taken possession of the properties other than the one at serial No.3 above. The possession of the property at serial No.1, with which we are concerned in this matter, was taken on 21st March 1997. As far as the property at Baroda is concerned, it is contended by the purchaser of that undertaking, namely, one Sunil Mill, that the mill has been made functional and some workers are working therein and because of an order passed by this court in Company Application No.143 of 1997, the Official Liquidator has not taken possession of that property. The property of Mill No.1 is situated in three different town planning schemes numbered as T.P.Scheme No.7, 16 and 9, the details of which are as follows: T.P.Scheme No. Final Plot No. Area in Sq.Mtrs. 7 2 56,542 (-) 5,810 (Chem. Divn.) 50,732 Lease-hold 3 585 " 6 1,169 52,486 16 304 74,457 Partly lease -hold 307 9,207 83,664 9 58/59 25,901 5. The two Company Applications Nos.99 of 1997 and 524 of 1997 filed by Rushvi Ltd. contend that, final plot No.307 of T.P. Scheme No.16 had been sold by the erstwhile management of Shri Ambica Mills Ltd. to the applicant company by a deed of conveyance. The applicants have prayed in Application No.99 of 1997 for lifting the attachment made by the Official Liquidator on the said property being final plot No.307 of the T.P.Scheme No.16. Application No.524 of 1997 seeks a declaration that the purchase of land of final plot No.307 of T.P.Scheme No.16 admeasuring 9207 square metres approximately (together with all staff quarters, out-house, godowns, bungalow etc.) is legal and valid and that the applicant is a bona fide purchaser for value of that property. 6. Company Applications Nos.189 of 1997, 205 of 1997 and 559 of 1997 filed by Rutuja Ltd. are concerning a parcel of land from final plot No.2 of T.P.Scheme No.7 admeasuring 9215 square metres. It is contended by the applicant that they are bona fide purchasers for value of this parcel of land. Company Application No.189 of 1997 prays for a direction to lift the attachment made by the Official Liquidator on the said property situated in final plot No.2 of T.P.Scheme No.7. Company Application No.205 of 1997 seeks leave to file a suit against Shri Ambica Mills Ltd. for a declaration that the plaintiff is the absolute owner of the leasehold rights in respect of the property conveyed to the applicant. Application No.559 of 1997 prays for a declaration that the applicant is a bona fide purchaser for value without notice of that property. 7. Company Application No.403 of 1998 filed by Jain Corporation is concerning a parcel of land situated at final plot No.6 of T.P.Scheme No.7 admeasuring 1169 square metres. This applicant also claims to be a bona fide purchaser for value and prays that the applicant may be put in actual possession of the land in question and also seeks a declaration that the applicant is the absolute owner of the leasehold rights of the said property. 8. M/s. Rushvi Ltd. principally contended in support of the aforesaid prayers that they have entered into an agreement to purchase the aforesaid parcel of land on 14th June 1988 with Shri Ambica Mills Ltd. That parcel of land was to be purchased at the rate of Rs.650 per square metre for an aggregate value of Rs.59,84,550. It is stated that at the time of execution of the said agreement the applicant made a payment of Rs.5,98,455 as earnest money by a cheque dated 14th June 1988. That agreement has been duly registered with the Sub-Registrar of Assurances, Ahmedabad. Subsequently, out of the balance amount, an amount of Rs.48,87,254 was claimed to have been paid in June 1990 by a cheque drawn in the name of the company and the remaining amount was paid in cash. It is further stated in Company Application No.99 of 1997 that the permission for sale as required under the provisions of the Urban Land (Ceiling & Regulations) Act, 1976 was obtained. Thereafter, a regular conveyance has been executed on 11th March 1993 which has been duly registered with the Sub-Registrar of Assurances at Ahmedabad. It is further stated that the land has been transferred in the name of the applicant in revenue records as well as municipal records. The applicants claim to have submitted plans for development of that land for construction of shops and industrial estate and the work was supposed to be in progress after sanction of the plans. 9. It is their case that thereafter on 21st March 1997, the Official Liquidator has taken over the property and put up his seal by way of attachment thereof. The aforesaid are the submissions in Company Application No.99 of 1997 which is affirmed by one N.P.Patel, Director of the applicant company. 10. In Company Application No.524 of 1997, it is contended in rejoinder filed by this very N.P.Patel (on page No.2 thereof) as follows: "I state and submit that in para 4 (b) of the affidavit in rejoinder, the company has specifically pointed out that at the time when the agreement for sale, supplementary agreement and the Deed of Conveyance were executed, the present shareholders and Directors were nowhere in picture". The documents concerning transfers of the shares have been annexed to this affidavit which show that the present group of directors have bought their shares during the period 10.10.1994 to 15.6.1996. Thus, through this rejoinder a plea is taken that the present directors are not bound by what was done by the erstwhile directors of Rushvi Ltd. thereby contending that they are not to be made to suffer. As stated above, in Company Application No.99 of 1997, it has been already contended specifically that the original transaction itself was a bona fide transaction and the applicant company is a bona fide purchaser for value. 11. Similar is the plea of Rutuja Ltd., applicants in Company Applications Nos.189 of 1997, 205 of 1997 and 559 of 1997. In the affidavit of one Dhanesh Badarmal Jain, a director of this applicant company, in support of Company Application No.189 of 1997, it is stated that, by an agreement dated 14th June 1988, Shri Ambica Mills Ltd. (now in liquidation) entered into an agreement to sell a parcel of land admeasuring 9215 square metres at the rate of Rs.650 per square metre for a total price of Rs.59,89,750. Out of this amount, the earnest money of Rs.5,98,975 was paid by a cheque dated 14th June 1988. From the remaining amount, a further payment of Rs.50,000 was made by a cheque on 13th June 1990 and payment of Rs.48,91,544 was made on 26th July 1990. As in the case of Rushvi Ltd., in this case also, the balance amount is said to have been paid in cash for the purpose of purchase of stamps and other legal expenses. 12. This applicant also states that the permission under the Urban Land (Ceiling & Regulations) Act, 1976 was obtained as also the permission of the Income Tax authorities. The conveyance was duly registered. the plans for further constructions have been approved. The land is entered in the name of the applicant in revenue and municipal records. It is further pointed out in support of this application that some 38 buyers of prospective shops have paid some amount to this applicant. It is also contended that the applicants were in possession of the concerned parcel of land and that on 14th May 1997 the Official Liquidator has attached this property. Similar are the averments in Company Application No.559 of 1997 as also Company Application No.205 of 1997. 13. As far as Company Application No.403 of 1998 is concerned, it is filed by M/s. Jain Corporation. In the supporting affidavit, it is stated that the concerned parcel of land admeasuring 1169 square metres has been purchased by this party at a price of Rs.650 per square metre. In para 2 of this application, it is stated that the agreement for purchase was entered into on 16th July 1988 and that agreement has been registered with the Sub-Registrar of Assurances. It is further stated in that para that it was agreed in the said sale agreement that the balance amount was to be paid at the time of execution of conveyance and that pending completion of formalities, the company has handed over possession of that property. In para 3 it is stated that the permission under Section 20 of the Urban Land (Ceiling & Regulations) Act, 1976 has been granted by the State Government on 6th October 1997. In para 5, it is stated that thereafter the property has been attached by the Official Liquidator. As far as this application is concerned, no supporting documents are enclosed therewith. 14. On behalf of the Official Liquidator, a report has been filed in Company Application No.99 of 1997 filed by Rushvi Ltd. opposing the prayers made therein. A similar report has also been filed in Company Application No.524 of 1997 by the Official Liquidator opposing the prayers made therein. 15. As far as Rutuja Ltd. is concerned, the Official Liquidator has filed his reports in Company Applications Nos.189 of 1997 and 559 of 1997. Though no report has been filed in Company Application No.205 of 1997, the permission to file a suit is opposed. 16. As far as Company Application No.403 of 1998 filed by M/s. Jain Corporation is concerned, it is being taken up along with the Applications filed by the other two purchasers and since no documents are enclosed with the application and since the parcel of land covered in this application forms a part of the same property, this application is also being opposed on the basis of the reports which are filed in the other matters. Mr.Shah, the learned Counsel for Official Liquidator states that the Official Liquidator is adopting the statements made in those reports as far as this matter is concerned and in the event any documents are produced in any higher forum, the Official Liquidator reserves the right to file his detailed report. 17. From amongst the secured creditors, ICICI has filed its reply in the two applications filed by Rushvi Ltd. as well as Company Applications Nos.189 of 1997 and 559 of 1997 filed by Rutuja Ltd. Thereafter, replies and further replies and rejoinders have been filed by the parties concerned. 18. After the aforesaid part of this order was dictated, Mr.Nagarkar has tendered a true copy of the agreement of purchase dated 16th August 1988 in Company Application No.403 of 1998 filed by Jain Corporation and the same is permitted to be placed on record. 19. In the reports which have been filed by the Official Liquidator, two very important developments in connection with this matter have been placed on record. First is that, whereas the main Company Petition No.66 of 1988 was filed for winding up of the company on 12th April 1988, at the same time, a matter between Oil & Natural Gas Commission (ONGC) and Shri Ambica Mills Ltd. (along with other companies was pending before the Hon.'ble Supreme Court of India. An order has come to be passed by the Hon.'ble Supreme Court in that matter, namely, Civil Miscellaneous Petition No.7875-85 of 1987 on 15th April 1987 and an undertaking has been given pursuant thereto by one Prahladbhai S.Brahmbhatt on behalf of Shri Ambica Mills Ltd. on 27th May 1987. The order and the undertaking indicate that a large amounts were due to ONGC from Shri Ambica Mills Ltd. (along with some other companies) apparently for supply of gas and the ONGC was directed not to disconnect supply of gas subject to an undertaking being given by this mill company (along with others) that they will not charge, encumber or alienate except with the leave of the Supreme Court any of the immovable assets and that they will make their immovable assets available for discharge of their liabilities on account of difference in price of gas supplied to them. The order and the undertaking are very relevant and to make the record complete both of them are being incorporated herein in extenso. "ORDER: These appeals will be listed peremptorily on July 21, 1987 as the very first case for regular hearing and above all other causes. 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 Chemical Works Company Services Ltd., New India Industries Ltd., Punjab Steel Rolling Mills Pvt. Ltd., Chanden 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.1000/- 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 respondents will not charge, encumber or alienate, except with leave of this court, any of their immovable assets included in the respective undertakings and that they will make their immovable asset available for discharging the respective liabilities on account of the difference in the price of all the gas supplied to and further during the pendency of the appeals as permitted by orders made by the court while disposing of the appeals. The undertaking will be filed within four weeks from today." 20. The undertaking filed by the above-referred Shri Brahmbhatt reads as follows: "UNDERTAKING I, Prahladbhai S.Brahmbhatt, do hereby solemnly affirm, undertake and state as under: 1. I am working as Secretary in Shri Ambica Mills Ltd. Respondent No.10 herein which is one of the members of the respondent No.1 i.e. Association of Natural Gas Consuming Industries of Gujarat. 2. I am conversant with the facts and circumstances leading to the present proceedings and, therefore, I am competent as well as authorised to give this undertaking on behalf of the respondent No.10 company pursuant to their Hon.'ble Court's order dated 15.4.1987 passed in Civil Misc. Petitions No.7875-85 of 1987 in the present civil appeals. I state that the copy of the said order was made available to the respondent No.10 company by the office of this Hon.'ble Court only on 14.5.1987. 3. I state that respondent No.10 company undertake 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. 4. I state that respondent No.10 company further undertake not to alienate any of its immovable assets hereafter with effect from 15.4.1987 except with the leave of this Hon.'ble Court. Respondent No.10 company 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. Solemnly affirmed on 27th day of May 1987 at Ahmedabad. Dated: 27th May 1987 Sd/- P.S.Brahmbhatt, Secretary". 21. This undertaking given to the Hon.'ble Supreme Court was quite well-known to the directors of the company and in the audit report of the company for the year 1993-94, it has been specifically recorded at Para No. 4 (iii) as follows: "The company entered into a Memorandum of Understanding for sale of land admeasuring 18,422 sq. mtrs. on 14th June 1988 for consideration aggregating to 119.74 lacs and handed over the possession. The Conveyance Deed has not been executed due to injunction granted by the Hon.'ble Supreme Court pending the permission under ULC Act from Government of Gujarat and release of charge of financial institution." In Para No.23 of this report, it is further recorded as follows: "The company entered into Memorandum of Understanding for sale of land admeasuring 18422 sq. mtrs. on 14th June, 1988 for consideration aggregating to 119.74 lacs and handed over the possession. The Conveyance Deed has not been executed due to injunction granted by the Hon.'ble Supreme Court pending the permission under ULC Act from Govt. of Gujarat and release of charge of financial institution. The part of consideration still receivable has been shown under Schedule 8 of Sundry Debtors - others." 22. The aforesaid entries in the audit report make it clear that though the mill company had entered into a Memorandum of Understanding on 14th June 1988, Conveyance Deed was not executed due to (i) injunction granted by the Supreme Court, (ii) pending permission under the ULC Act from the Government of Gujarat, and (iii) release of charge of financial institution. The same state of facts are reflected in the above-referred Entry No.23. Thus, from the report of the Official Liquidator it is made clear that right at the time when the main company petition for winding up was filed, there was a pre-existing injunction granted by the Hon.'ble Supreme Court restraining the mill company from alienating the assets which was principally for clearing of the dues of ONGC. It is also clear that an undertaking was given to the Hon.'ble Supreme Court in that behalf and it is continued to be reflected in the audit reports of the company including in its report for 1993-94. 23. Along with the report of the Official Liquidator, he has filed a statement signed on 27.3.1997 by one Rajesh Jaykrishna, ex-director of Shri Ambica Mills Ltd. and in para 2 thereof he has referred to the agreements entered into with the aforesaid three parties and it is further stated that Conveyance Deed could not be executed 'due to technical reasons'. Paragraph (2) of that statement reads as follows: "The Company had entered into an Agreement for Sale for the following land, situated near Mill premises, including structures etc. wherever applicable and handed over the possession to the respective Buyers but the Conveyance Deed could not be executed due to technical reasons: (A) Rutuja Estate & Investment Pvt. Ltd. Area 9,215 sq.mt. (B) Rushvi Estate & Investment Pvt. Ltd. Area 9,207 sq.mt. (C) Jain Corporation Area 1,169 sq.mt. (D) Besides, at present some shops are there on some portion of land and they are given on rental basis." Mr.Shah for the Official Liquidator has also drawn my attention to the annual report for the year 1991-92 wherein at page 7 in para 7 it is recorded as follows: "The company entered into Memorandum of Understanding for sale of land admeasuring 18422 sq. mtrs. on 14th June 1988 for consideration aggregating to Rs.119.74 lacs and handed over the possession. The Conveyance Deed has not been executed due to injunction granted by the Honourable Supreme Court, pending the permission under ULC Act from the Government of Gujarat and release of charge of financial institution." Mr.Shah has tendered a copy of the report and the same is taken on record. 24. It is also material to note that the two purchasing parties, namely, Rushvi Ltd. and Rutuja Ltd. have filed photocopies of the Powers of attorney dated 26th July 1990 allegedly given by the company to two individuals who in turn entered into the conveyance with the said two companies. It is material to note that both these powers are signed by above-referred Rajesh Jaykrishna on behalf of the mill company. Thus, what is relevant is that the mill company was subject to an injunction granted by the Supreme Court on 15th April 1987; they gave an undertaking in accordance with that order on 27th May 1987; and they recorded in their audit reports in 1991-92 and 1993-94 that in view of the injunction of the Hon.'ble Supreme Court, conveyance of the property could not be executed. That is also indicated in the statement given to the Official Liquidator by aforesaid Rajesh Jaykrishna as recently as on 27th March 1997, whereas this very Rajesh Jaykrishna has signed the Power of attorney allegedly on behalf of the company authorising conveyance. 25. From amongst the creditors, ICICI is one which had sanctioned a loan of Rs.100 lacs which came to be disbursed (the total liability to ICICI comes to Rs.150 lacs which includes amount of interest as well). By an Indenture of contributory mortgage dated 20th January 1984 between Shri Ambica Mills Ltd. and ICICI (amongst others), this amount was secured by creating a mortgage in favour of ICICI (and other creditors). By the said mortgage, the entire land and