coapp597-10 (OLR356-10).doc 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION OFFICIAL LIQUIDATOR REPORT NO.356 OF 2010 AND COMPANY APPLICATION NO.597 OF 2010 IN COMPANY APPLICATION NO.369 OF 2003 B.I.F.R. .. Petitioner Versus M/s.SLM Maneklal Industries Ltd. .. Respondents (In Liquidation) CORAM : S.C.DHARMADHIKARI, J. Reserved on : 21st September 2011. Pronounced on : 21st October 2011. ORAL ORDER:- 1] The Official Liquidator has submitted a report dated 3rd November 2010 praying for the following reliefs:- “(a) In view of the para 6 and 7 of this report, whether this Hon'ble Court would be pleased to declare the sale of the movable assets to Mr.Yusufbhai I. Parmar and Mr.Deven Rameshbhai Patel held in January 2007 and the sale of the immovable properties to M/s.Taxraj Reality Pvt Ltd in June 2007 as null and void and also direct the purchasers to return the said movable and coapp597-10 (OLR356-10).doc 2 immoveable assets to the Official Liquidator. (b) Whether this Hon'ble Court would be pleased to direct the ex-directors of the company (in liqn.) who had sold the movable and immoveable properties to deposit the sale proceeds to the Official Liquidator within such period as this Hon'ble Court may determine. (c) In view of the para 10 of this report, whether this Hon'ble Court would be pleased to permit the Official Liquidator to take possession of the movable and immoveable assets mentioned therein into his possession;” 2] It is stated by the Official Liquidator that notice of hearing of this report along with a copy thereof is served on the ex- directors of the petitioner, secured creditors, President of T.Maneklal Employees Union, General Secretary of Gujarat Kamgar Panchayat, Gen.Secretary of Gujarat Rajya Shramajeevi Karmachari Union, Mr.Yusuf Rarmar, Deven Patel and M/s.Tex Raj Realty Pvt. Ltd. (Purchaser). 3] Mr.J.P.Sen, learned Counsel appearing for the Official Liquidator has contended that the report proceeds on the basis coapp597-10 (OLR356-10).doc 3 that an order recommending winding up of the company in liquidation was passed on 23rd November 2000 by the Board for Industrial and Financial Reconstruction (BIFR for short). This recommendation came to be numbered and registered as a Company Petition for winding up. That was treated as being filed on 29th April 2003. It was admitted on 11th June 2004. The Official Liquidator came to be appointed as provisional liquidator on 14th March 2007 and, thereafter, on 26th July 2010 this Court passed an order winding up the company in liquidation. 4] Mr.Sen submits that pursuant to the order of winding up, the Official Liquidator issued notices fixing meeting of all concerned for ascertaining details of the assets of the company in liquidation and also to decide the modalities for taking possession of the assets. 5] The Liquidator received certain letters and it is stated that coapp597-10 (OLR356-10).doc 4 as far as movable properties of the company in liquidation are concerned, they have been sold in favour of one Yusuf Parmar and Deven Patel in January 2007. As far as the other documents and correspondence would indicate that various immovable properties were purported to be sold to one Tex Raj in June 2007. Upon examination of all details and the information forwarded, in the affidavit, the Official Liquidator states that he had notice of the sale of properties enlisted at para 7(B)(e) of the report. These properties have been sold when the Official Liquidator was appointed as provisional liquidator. The objection is that this is not a sale by the Debt Recovery Tribunal (DRT) as proclaimed but it is a private sale. Once it is a private sale, then, the same be declared as void. It is after the date of presentation of the winding up petition viz., 29th April 2003. Therefore, in terms of the statutory provisions, section 536(2) and 537 of the Companies Act, 1956, the sale be declared as void. The sale proceeds be, therefore, directed to be deposited with the Liquidator. coapp597-10 (OLR356-10).doc 5 6] This report is objected to by M/s.Tex Raj. However, prior thereto, one Vikas Thakur claiming to be authorised representative of the company in liquidation has filed an affidavit affirmed on 16th March 2011, in which it is stated that the respondent company has sold to one M/s.Tex Raj following plots through DRT auction:- 1. By a MOU dated 17th January 2007 executed between Texraj Reality Pvt. Ltd. And M/s. SLM Maneklal Industries; 2. By a Sale deed dated 4th June 2007 executed between Texraj Reality Pvt.Ltd. And M/s.SLM Maneklal Industries Ltd. Whereby Texraj Reality Pvt.Ltd. Has acquired non-agricultural land bearing Survey No.1037 + 1038 + 1039 + 1040 + 1041 + 1042 + 1043 + 1046 + 1568 + 1569 and 1572 admeasuring about 11634 sq.mtrs., situated at Moje Vatva Taluka Daseroi, Ahmdabad – 5 (Narol) for Rs. 82,50,408/-; 3. By a sale deed dated 4th June 2007 between Texraj Reality Pvt. Ltd. And M/s.SLM Maneklal Industries Ltd., whereby Texraj Reality Pvt.Ltd has acquired non agricultural land bearing Survey No.323 admeasuring about 6273 sq.mtrs situated at Moje Vinzol, Taluka Daseroi, Ahmedabad – 5, (Narol), were sold in favour of Texraj Reality Pvt. Ltd on 4th June 2007 for a total consideration of Rs.44,48,888/-; 4. By a sale deed dated 4th June 2007 between Texraj Reality Pvt Ltd and M/s.SLM Maneklal Industries Ltd coapp597-10 (OLR356-10).doc 6 whereby Texraj Reality Pvt Ltd has acquired non agricultural land bearing Survey No.321/1 to 321/12 admeasuring about 31971 sq.mtrs situated at Moje Vinzol, Taluka Deseroi, Ahmedabad 5 (Narol) had been sold in favour of Texraj Reality Pvt Ltd on 4th June 2007 for a total consideration of Rs. 2,26,72,038/-; 5. By a sale deed dated 4th June 2007 between Texraj Reality Pvt Ltd and M/s.SLM Maneklal Industries Ltd whereby Texraj Reality Pvt Ltd has acquired all that piece or parcel of non agricultural land bearing Survey No.320 Paiki admeasuring about 4047 sq.mtrs as per revenue record. Actual land area at site is 4309 sq.mtrs along with construction stranding thereon admeasuring about 800 sq.mtrs situate, lying and being at Moje Vinzol, Taluka Dascroi, in the registration district of Ahmedabad and Sub-District of Ahmedabad-5(Narol) for a total consideration of Rs. 28,69,794/-; 6. By a Deed of Conveyance dated 21.3.2007 Texraj Reality Pvt Ltd have acquired the property from M/s.SLM Maneklal Industries Ltd as under property for the consideration of Rs.5,93,60,261/- on as is where is basis all those pieces or parcels of land hereditaments and premises situated in Vatwa and Vinzol villages Taluka Dasoroi, Ahmedabad, State of Gujarat in the registration district and sub district of Ahmedabad bearing Survey Nos.750 A (Part Vatwa) 1030,2037,1037,1569 and 1572 of Vatwa village and Survey Nos.321, 323 and 324 of Vinzol village. 7] He further states in the affidavit as follows: coapp597-10 (OLR356-10).doc 7 “(6) Pursuant to the above documents, Texraj Reality Pvt Ltd has deposited the sum of Rs. 10,59,43,855/- in the Hon'ble DRT and also paid all statutory dues of payable by the said Company as set out in detail hereinbelow. I say that the said entire amount was utilised for the purpose for settling the dues of the various banks by negotiating and entering into a one time settlement agreement (OTS) whereby the claims of the Banks and secured creditors to the tune of about Rs.100 crores were settled by payment of an aggregate amount of Rs.10,59,43,855/- as per the orders passed by the DRT; (7) I, therefore, state that in the manner aforesaid, during the pendency of the petition the shareholders of the company succeeded in raising funds for discharging the liabilities of the company. I say that the company therefore approached the creditors and settled legal proceedings including proceeding pending before the Hon'ble High Court, Gujarat and DRT, Mumbai. I say and submit that there were about 1600 workers who were working with the company. Out of this 1600 workers the company has already settled with 1354 workers regarding their dues and discharge the liabilities to the tune of Rs.3.95 crores approximately. I say that the company has settled the claims with the workers and the representatives of the union; (8) I say that the company has deposited an amount of Rs.1 crore on 3rd May 2007 with the Provident Fund Department at Ahmedabad against the provident funds contribution of the workers. I further say that on 26th March 2008 the company has received an order from Provident Commissioner by which the Provident Fund Commissioners has adjudicated the dues of the workers of the company coapp597-10 (OLR356-10).doc 8 and has directed the company to deposit further amount an Rs.27 lacs approximately. I say that as aforesaid the company has already deposited the sum of Rs.1 crore with the Provident Fund Department towards the dues of the workers. I say that after the disbursement of the amount of Rs.27 lacs the company is entitled to the refund of Rs.73 lacs from the Provident Fund Department; I say that the said company arrived at a One Time Settlement (OTS) with four of its secured creditors i.e Bank of Baroda, Bank of India, Dena Bank and Banque Nationale De Paris, Consortium Partners (hereinafter referred to as the said Banks). I repeat that the company has received and paid over to the Banks, labour and statutory creditors the entire total amount of Rs.19,22,53,098/-. Out of that amount paid to the Banks is Rs.10,59,43,855/- plus other dues cleared like:-Ahmedabad Municipal Corporation = Rs.1,99,99,411/-, to Land Revenue Taxes = Rs. 30,19,033.65 + Bank of Baroda Debenture Holders = Rs.80,00,000/- + Torrent Power Limited = Rs. 24,00,000/- + PF Department = Rs.1,10,04,799/- + other creditors = Rs.5,52,173.25/-. All the above payments have been made by the said company thereby settling all dues of the said Banks. The company have deposited the entire amount in the Hon'ble DRT. I crave leave to refer to rely upon the copies of the order of the DRT and receipts issued by the Ahmedabad Municipal Corporation and No Dues Certificates issued by the concerned banks and copies of the letters and receipts issued by the Torrent Power Limited; (9) I say and submit that the company has also settled and discharged the liabilities of the debenture holders of Rs.80,00,000/- in Recovery Proceeding coapp597-10 (OLR356-10).doc 9 No.1 of 2006 in O.A No.652 of 2001. I crave leave to refer to rely upon copy of the affidavit filed by Bank of Baroda in its capacity as Debentures Trustees and the copy of the Banker's cheque dated 9th March 2007 reflecting an amount of Rs.80,00,000/- paid to the Bank of Baroda as Debenture Trustees. I further say and submit that the company has also settled the legal proceeding of unsecured creditors pending before the Gujarat High Court accordingly said proceeding disposed of by the order dated 27th September 2006 and consent term dated 15th October 2007; (10) I say that the company has also forwarded a cheque of Rs.45,00,000/- in favour of M/s.Gujarat Industrial Investment Corporation, Gandhinagar (GIIC) towards its outstanding claim of Rs.45 lacs as one time settlement (OTS) of its dues vide its letter dated 3rd April 2007.” 8] Then, he claims that the properties have been sold for valuable consideration. These were securities of banks and financial institutions. The entire sale proceeds have been applied to settle their claim as also that of the workers and statutory authorities, in the manner enumerated above. Therefore, there is no question of the sale being declared as void and in any event, the sale is a bonafide act on the part of the company and there is no question of the same being coapp597-10 (OLR356-10).doc 10 vitiated as alleged. 9] As far as M/s.Tex Raj are concerned, they have produced along with the first affidavit the entire record in relation to Recovery Proceedings No.1 of 2006 before the Mumbai DRT between the Bank of Baroda Vs. SLM Industries and Ors. And more particularly Exh.35, 48 and 50. It is their case that one original application was filed by Bank of Baroda against the company in liquidation before DRT Mumbai on 18th June 2001. That Original Application bearing No.652 of 2001 was allowed by DRT on 25th November 2005. There was a recovery certificate issued in furtherance of the judgement and order on 29th December 2005. A Receiver was appointed by the DRT on 28th November 2006. It is stated that in execution of this recovery certificate an application was made seeking clearance for sale of the property. The sale proclamation was drawn on 9th January 2007. The receiver issued a letter to the Liquidator on 10th January 2007 that physical possession may be taken on coapp597-10 (OLR356-10).doc 11 16th January 2007. Prior thereto, an application was made for postponement of sale on 13th January 2007 and reliance is placed on Rule 66 of Schedule II of The Recovery of Debts due to Banks and Financial Institution Rules (Rules for short). It was stated that the applicant had found out a buyer and, therefore, enabling postponement of sale by virtue of Rule 66 that it came to be postponed. 10] Reliance is then placed on several proposals which came to be forwarded by the Company in liquidation. In that regard, what has been stated in the affidavit dated 30th June 2011 of M/s.Tex Raj is that an application was made on behalf of the company in liquidation which was original defendant No.1 in recovery proceedings No.1 of 2006 in O.A. 652 of 2001 in the following terms:- “1 As stated in the application dated 20.3.2007, the defendant No.1 has with the help of M/s.Texraj Realty already deposited in the Hon'ble Court the entire OTS amounts with further delayed payment interest claimed as per Pay Orders by- (i) Bank of Baroda, coapp597-10 (OLR356-10).doc 12 (ii) Bank of India, (iii) BNP Paribas and (iv) Dena Bank. The said banks have accepted the aforestated OTS amount in full and final settlement of all their claims and have released their charge/mortgage or any other claim of any nature whatsoever in or over and all the assets and properties of the defendant No. 1 and have confirmed that they now have no dues or claims against the defendant No.1. 2 In view of the above, it is submitted that the present Recovery Proceedings namely Recovery Proceeding No.1/2006 and R.P.No.411/2004 as also the claims of Dena Bank in O.A. No.144/2003 and the claims of BNP Paribas be marked fully satisfied. It is further submitted that the defendant No.1 has in consideration of the financial assistance granted to defendant No.1 by M/s.Texraj Realty and in view of the aforesaid Banks having released their respective claims over the properties of the defendant No.1 and further in view of the fact that M/s.Texraj Realty having agreed to take over all liabilities of the defendant No.1 company towards Sales Tax, Labour, Electricity, GIIC, GIDC, Excise, Provident Fund, Municipal and Revenue Taxes, the defendant No.1 has agreed to sell the properties situated at Watwa, Ahmedabad and Halol all in the State of Gujarat belonging to defendant No.1 to M/s.Texraj Realty on the terms and conditions set out in the Deed. 3 In view of all that is stated above, it is prayed that:- (a) this Hon'ble Forum be pleased to declare that all the claims under the Recovery Proceeding No. 1/2006 and R.P.No.411/2004 are fully satisfied and the said four Banks viz, (i) Bank of Baroda, (ii) Bank coapp597-10 (OLR356-10).doc 13 of India, (iii) BNP Paribas and (iv) Dena Bank, now have no claims against the defendant No.1 and Dena Bank be directed to withdraw the O.A.No.144/2003.” 11] This application was made on 23rd March 2007. It is stated that once the sale was postponed, then, relying upon the phraseology of rule 66, although, this is a private sale, in favour of M/s.Tex Raj, yet, it is by DRT. Once the request was made to the Recovery Officer to postpone the sale by and the relief that was sought is traceable to Rule 66, then, the powers under section 536(2) of the Companies Act, 1956 be exercised to confirm the sale and the transaction in favour of M/s.Tex Raj. More so, when M/s.Tex Raj has disbursed the amounts towards the claims of the workmen, State Bank of India and all banks have released the properties and assets from their charge and mortgage. Further, the statutory dues have also been paid. Reliance is placed upon an order passed by the Recovery Officer, a copy of which is at Exh.C to the affidavit of M/s.Tex Raj dated 30th June 2011. That order records thus:- coapp597-10 (OLR356-10).doc 14 “1 As per the compromised settlement among the Bankers, Defendant No.1 has to pay an amount of Rs.10,57,86,320/- inclusive of earned interest and interest of Rs.1,57,535/-. The break-up of this amount is given below: Bank of Baroda Rs.5,72,31,124/- Bank of India Rs.2,28,29,131/- BNP Paribas Rs. 65,87,065/- Dena Bank Rs.1,91,39,000/- 2 After paying this amount, the liability of the defendant No.1 company will be fully satisfied and there will be no other claim of the Bank as against the company. They will be issuing a “No Dues” Certificate to the defendants. 3 All the banks shall be hereby distributed the amount as per the ratio mentioned above. 4 Now DRT has to distribute cheques to the following Banks as given below: Bank of Baroda Rs.3,20,73,859/- (after adjusting Rs.2,51,47,535/-) Bank of India Rs.2,28,29,131/- BNP Paribas Rs. 65,87,065/- Dena Bank Rs.1,91,39,000/- 5 Both the R.P.No.01/2006 and No.411/2004 stand fully satisfied of Bank of Baroda and Bank of India, respectively. coapp597-10 (OLR356-10).doc 15 6 R.P.No.01/2006 and No.411/04 will be continued against the remaining defendant Nos.17 to 19 in accordance with the terms and conditions and as per the Recovery Certificate dated 29.12.2005. 7 Recovery proceedings before DRT-I, bearing No.80/2005 initiated by BNP Paribas will be withdrawn as fully satisfied against the defendant No. 1. Similarly, Dena Bank will also have to withdraw the proceedings in O.A.No.144 of 2004. 8 Excess amount paid by the defendant No.1 of Rs.12,937/- will be refunded to defendant No.1 being not required. 9 DRT Receiver stands discharged without taking the accounts, as the proceeding against defendant No.1 stands fully satisfied.” 12] There is thus total compliance and now this Court should not, therefore, disturb the settled state of affairs. 13] It is argued that the entire exercise cannot be called a private sale and once even a private sale is recognised by Rule 66 and falls within the purview thereof, there is no role of the Official Liquidator. The true spirit of Rule 66 must be taken into consideration and the transaction be regularised and held to be coapp597-10 (OLR356-10).doc 16 valid. More so, when the sale is confirmed some time in March and July 2007, none came forward to object the same. Today, none of the individual workers have any grievance but only union leaders have come forward to argue that what transpired between the company in liquidation and M/s.Tex Raj is a private arrangement, which cannot be upheld as it contravenes the interest of creditors. However, the workers list at page 113 of the affidavit of M/s.Tex Raj affirmed on 3rd September 2011 would show that the same is conclusive and none of the persons enlisted therein have come forward nor raised any grievance with regard to the dues that have been paid and received. The entire chain of circumstances must be seen. There is no malice which can be attributed to anybody inasmuch as when the sale took place, there was no provisional liquidator also. When the applications were made before the DRT, there was no order passed by this Court appointing Official Liquidator as provisional Liquidator, far from winding up the affairs of the company under liquidation. Therefore, there is coapp597-10 (OLR356-10).doc 17 no attempt to over-reach the Company Court nor perpetrate any fraud on parties or on the Court. All Unions have accepted the amount. They have now filed false affidavits and their whole version is false. The Official Liquidator does not allege fraud, malice with regard to the one time settlement with the Bank or other creditors but only brings to the notice of the Court certain provisions of Companies Act, 1956. There is no allegation in the report that the sale is not in the interest of secured creditors. Assuming without admitting that the sale by the company under liquidation is dishonest, but there is no allegation that the purchaser Tex Raj had knowledge of this dishonesty or it is a party to the fraud. This Court is considering the Official Liquidator's report and the workmen cannot expand the scope of the proceedings. For all these reasons, the objections of the Union be overruled, is the submission on behalf of the purchaser, by Mr.Yatin Oza, learned Senior Counsel. coapp597-10 (OLR356-10).doc 18 14] He has relied upon following decisions in support of the above submissions: (1)AIR 2003 Supreme Court 2012 (International Coach Builders Ltd vs. Karnataka State Financial Corporation); (2)AIR 2000 Supreme Court 2642 (A.P.State Financial Corporation vs. Official Liquidator); (3) Order passed in Company Petition No.359/2003 and other connected matters on 14th March 2007 (In the matter of BIFR Case No.132 of 1999 of M/s.Subhakti Industries Ltd); (4)Order passed in Company Application No.954 of 2007 in Company Petition No.369 of 2003; (5) Order passed in Company Petition No.369 of 2003 and other connected matters on 10th September 2009 (BIFR vs. SLM Maneklal Industries Ltd); coapp597-10 (OLR356-10).doc 19 (6) Order passed in Company Application No.597 of 2010 in Company Petition No.369 of 2003 a/w OL Report on 17th June 2011 (BIFR Vs. SIM Industries Ltd & Kantilal Maganlal Patel & Ors vs. O.L., High Court, Bombay); (7) Order passed in Appeal (Lod) No.296 of 2011 on 27th June 2011 (M/s.Texraj Reality Pvt Ltd vs. BIFR & Ors); (8) Order passed in Appeal (Lod) No.68 of 2011 in Company Application No.1166 of 2007 in Company Petition No.369 of 2003 on 22nd August 2011 (SLM Industries Ltd vs.Board for Industrial & Financial Reconstruction & Ors); (9)(2000) 4 Supreme Court Cases 406 (Allahabad Bank vs. Canara Bank and Another); (10)(2005) 8 Supreme Court Cases 190 (Rajasthan State Financial Corporation and Another vs. Official Liquidator and Another); coapp597-10 (OLR356-10).doc 20 (11)Order passed in Company Petition No.215 of 1997 and other connected matters (In the matter of M/s.Divya Chemicals Ltd) on 14th January 2005; (12)(1998) 1 Supreme Court 650 (P.Virudhachalam and others vs. Management of Lotus Mills and Another. 15] On the other hand, there are two unions, who have filed affidavits. The affidavits filed by General Secretary of Gujarat Kamgar Panchayat dated 25th July 2011 alleges that the third party purchaser is not a bonafide purchaser. The third party purchaser has not acquired or purchased the property under a sale by the Recovery Officer of DRT Mumbai. There is no sale under the supervision and control of the Recovery Officer. It is stated that the Company in liquidation filed an Company Application No.116 of 2007 seeking to set aside the order of appointment of provisional Liquidator. The submission and averments of the company in liquidation in that affidavit are coapp597-10 (OLR356-10).doc 21 identical to that of M/s.Tex Raj in the present case. The issue of so called payment to the workers by way of settlement has been raised even earlier. However, once the parties viz., the company in liquidation and M/s.Tex Raj avoided public auction and the sale also not protecting the rights of the employees, then, this Court should not uphold the same. Further, the rights of the workers in terms of section 19(1) of the Recovery of Debts due to Banks and Financial Institutions Act (for short RDB Act) has not been protected and rather defeated by the sale. There is no rateable distribution in terms of statutory provisions. For all these reasons, this company application be dismissed. 16] Then, there is another affidavit which has been filed by Gujarat Rajya Shramajeevi Karmachari Union. Therein, they have stated that the settlement provides for payment of only gratuity to the workmen and no other payment. It is denied that the alleged settlement Exh.D to the affidavit is