SCA/13945/2008 1/9 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 13945 of 2008 For Approval and Signature: HONOURABLE MR. JUSTICE MOHIT S. SHAH and HONOURABLE MS.JUSTICE H.N.DEVANI ========================================= 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 ? ========================================= KALANTRY TEXTILE CONSULTANTS THRO' PRAMODBHAI R TRIVEDI - Petitioner(s) Versus INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD THROUGH & 4 - Respondent(s) ========================================= Appearance : MR BHARAT T RAO for Petitioner(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 1 - 5. MR BHARAT JANI for Respondent(s) : 1, PS GOGIA for Respondent(s) : 2, MR HARDIK S SONI for Respondent(s) : 3, MR APURVA DAVE, AGP for Respondent(s) : 4, MR MIHIR THAKORE, SENIOR ADVOCATE with MR RAKESH GUPTA and MR ABHISHEK MEHTA for M/S TRIVEDI & GUPTA for Respondent(s) : 5, ========================================= CORAM : HONOURABLE MR. JUSTICE MOHIT S. SHAH and HONOURABLE MS.JUSTICE H.N.DEVANI SCA/13945/2008 2/9 JUDGMENT Date : 15/12/2008 ORAL JUDGMENT (Per : HONOURABLE MR. JUSTICE MOHIT S. SHAH) In this petition under Article 226 of the Constitution filed on 21.11.2008, the petitioner, M/s. Kalantry Textile Consultants, a proprietary concern, has prayed for a writ to quash and set aside the confirmation of sale in favour of respondent No. 5 – Shanti Exports Pvt. Ltd. made by respondent No. 1 – Industrial Development Bank of India Ltd., (hereinafter referred to as “IDBI”) for sale of assets of Arunoday Mills Ltd., Morbi. The confirmation was made by IDBI on 8.2.2007 and the deed of conveyance by IDBI under the Securitisation Act in favour of respondent No. 5 was executed on 12.7.2007. 2. The broad facts leading to filing of this petition are not in dispute. Arunoday Mills Ltd. running its Textile Mill at Village Mahendranagar, Taluka Morbi, District Rajkot had obtained various credit facilities from Industrial Development Bank of India (hereinafter referred to as “IDBI”) and from other Banks and financial institutions, such as, Bank of India, Exim Bank, Syndicate Bank, Development Credit Bank and Bank of Baroda. Since Arunoday Mills Ltd. failed to repay the outstanding dues, the proceedings under the provisions of Securitisation Act were initiated by IDBI after issuing the demand notice and possession of the properties of Arunoday Mills Ltd. was also taken over under the provisions of the above Act. In exercise of the powers conferred under the said Act, IDBI as the lead Bank on behalf of secured creditors, invited bids for purchase of movable and immovable assets of Arunoday Mills Ltd. “as a going concern” on “as is where is and whatever there is basis” by public advertisement dated 23.01.2007. Some of the other terms and conditions of the tender also stipulated that “the SCA/13945/2008 3/9 JUDGMENT intending bidder should be willing to run the unit at the present location” and that the bidder will have to satisfy himself about any other encumbrances, charges, liens and all other taxes and that the purchaser shall be deemed to have purchased the property subject to all encumbrances, liens, claims and tax liability including arrears and outgoing, whatsoever, without claiming any compensation or deduction from the price. In the said tender notice, the reserved price of the assets of Arunoday Mills Ltd. was fixed at Rs.35 crores. 3. In response to the tender notice, M/s. Nandan Exim Ltd. finally submitted the offer of Rs.35 crores which came to be accepted by IDBI and sale deed / a deed of conveyance was executed by IDBI in favour of the nominee of M/s. Nandan Exim Ltd. i.e. in favour of the present petitioner on 12.07.2007. IDBI received the said amount of Rs.35 crores exclusive of all the liabilities of Arunoday Mills Ltd. The amount of Rs.35 crores was accordingly paid by the petitioner to IDBI, which received the same as the lead Bank on behalf of the secured creditors. 4. It appears that subsequently, respondent No. 5 started the mill. However, the mill was closed down within a period of less than three months on account of labour problems. The workers of Arunoday Mills Ltd. raised dispute before the Industrial Court and the Industrial Court passed an order directing respondent No. 5 to employ all the old employees whose names are on the muster roll of Arunoday Mills Ltd. as employees of respondent No. 5 and pay all workers' legitimate dues of back wages. The said order was challenged by respondent No. 5 before this Court. It appears that in the proceedings before this Court, a settlement was arrived at with the workers pursuant to which, respondent No. 5 was required to pay an amount of Rs. 7.42 crores SCA/13945/2008 4/9 JUDGMENT approximately. Subsequently, it appears that respondent No. 5 had started dismantling the plant and machineries with a view to dispose of the same for paying the dues of the workers. It is at this stage that the present petition has been filed by the petitioner. 5. The thrust of the petitioner's case is that IDBI had specifically stipulated in the terms and conditions of sale that the assets of Arunoday Mills Ltd. were to be purchased by the purchaser for the purpose of running the unit as a going concern and that by not abiding by the said condition, respondent No. 5 has forfeited all the rights under the sale deed and therefore, the decision of IDBI to confirm the sale in favour of respondent No. 5 is required to be set aside and respondent No. 5 is required to be restrained from dismantling the plant and machineries and also respondent No. 5 is required to be restrained from disposing of the lands and building and plant and machineries purchased by it at the auction sale in question. 6. It is the petitioner's contention that as against the offer of Rs.35 crores made by respondent No. 5, the offer of the petitioner Company was Rs. 41 crores without any liabilities and that IDBI should have accepted the offer of the petitioner rather than the offer of respondent No. 5. 7. Affidavit-in-reply is filed on behalf of IDBI mainly contending that the petition suffers from gross delay, laches and acquiescence as the confirmation of sale was made in favour of M/s. Nandan Exim Ltd., (respondent No. 5 is the nominee) as far back as on 8.2.2007 and that after receiving the consideration, sale certificate was issued on 18.6.2007 and thereafter, the deed of conveyance was executed in respect of immovable properties of Arunoday Mills Ltd. on 12.7.2007 in favour of SCA/13945/2008 5/9 JUDGMENT respondent No. 5 i.e. nominee of the successful bidder. By the same deed, the plant and machineries were also sold to respondent No. 5. It is, therefore, submitted that the petition filed in November 2008 suffers from the gross delay of more than a year and 9 months. 8. It is further contended that IDBI had followed the requisite procedure by issuing a public advertisement and inviting the offers, that the terms and conditions in the tender notice specifically required the purchaser to bear all the tax liabilities, labour liabilities, etc. and that the offer of the petitioner to purchase all the assets of Arunoday Mills Ltd. at Rs.41 crores was in response to the first tender notice, but the petitioner did not submit any offer in response to the second tender notice. Hence, the petitioner has no right to make any grievance against acceptance of the bid of respondent No. 5 who was the only bidder whose offer matched the upset price fixed in the tender notice. 9. Mr Mihir Thakore, learned Senior Advocate with Mr Rakesh Gupta and Mr Abhishek Mehta for respondent No. 5 have opposed the petition and submitted that respondent No. 5, apart from paying Rs.35 crores to IDBI, has also spent other substantial amount as under :- Sr. No. Particulars Amount (Rs. in Crores) Approx. 1 Payment made to IDBI Bank for acquisition of the assets of M/s. Arunoday Mills Ltd. in its unit located at Morbi pursuant to the auction sale between 5.2.2007 to 8.6.2007. 35.00 2 Additional amount of interest paid to IDBI Bank in connection with the acquisition of the assets of M/s. Arunoday Mills Ltd. 0.40 3 Interest debited by Axis Bank till 30.11.2008 for term loan of Rs.23 crores sanctioned by Axis Bank towards payment of the amount of Rs.35 crores to IDBI Bank. 4.54 SCA/13945/2008 6/9 JUDGMENT Sr. No. Particulars Amount (Rs. in Crores) Approx. 4 Interest amount debited in terms of generation of self-funds for an amount of Rs.12 crores for making payment to IDBI Bank @ 15% per annum till 30.11.2008. 3.00 5 Pre-operative expenditure and loss incurred in operation of the unit at Morbi. 6.28 6 Payments already disbursed to the workmen of M/s. Arunoday Mills Ltd. in terms of the settlement arrived at between the parties, as per the order dated 10.11.2008 of this Hon'ble Court in SCA No. 28961 of 2007. 1.00 7 Payments to be made to the workmen of M/s. Arunoday Mills Ltd. in terms of the settlement arrived at between the parties, as per the order dated 10.11.2008 of this Hon'ble Court in SCA No. 28961 of 2007. 6.42 TOTAL 56.64 It is also stated that over and above the said amounts, various other liabilities, such as liability to pay arrears of taxes e.g. sales tax, electricity duty will arise in future. Reference is also made to the outcome of Special Civil Application No. 13834 of 2008 wherein this Court has held that respondent No. 5 herein – Shanti Exports Pvt. Ltd. is liable to pay all the sales tax dues including the arrears thereof of Arunoday Mills Ltd. along with interest thereon. 10. The learned counsel for respondent No.5 has submitted that respondent No. 5 has also entered into a settlement with the workers to pay them Rs.7.42 crores as per the settlement arrived at with the workers on 24.10.2008. It is submitted that respondent No. 5 made a genuine attempt to run the textile mill with the assets of Arunoday Mills SCA/13945/2008 7/9 JUDGMENT Ltd. but for various reasons indicated in the reply affidavit, it was not possible to run the mill and therefore, respondent No. 5 had to enter into the settlement with the workers on 24.10.2008 whereunder respondent No. 5 has to pay them Rs. 7.42 crores. It is, therefore, submitted by the learned counsel for respondent No. 5 that if all the aforesaid amounts are taken into consideration, respondent No. 5 has spent and is liable to spend more than Rs.56 crores. Hence, the petitioner's contention that its offer of Rs.41 crores inclusive of liabilities should have been accepted is thoroughly misconceived. 11. At this stage, Mr BT Rao, learned advocate for the petitioner Company states that the petitioner is ready and willing to pay the sum of Rs.51 crores inclusive of all liabilities. 12. Having heard the learned counsel for the parties, we do find that the present petition filed in November 2008 suffers from delay, laches and acquiescence. The confirmation of sale in favour of Nandan Axim Ltd. was made by IDBI as far back as on 8.2.2007 and on the basis thereof, the successful bidder paid an amount of Rs.35 crores plus interest for delayed payment and a deed of conveyance was executed in favour of respondent No. 5 i.e. nominee of successful bidder as far back as on 12.07.2007. 13. It is true that the petitioner's case is that the petitioner did not apply in response to the second tender notice because one of the terms and conditions of the proposed sale was that the purchaser shall have to run the unit as a going concern. However, respondent No. 5 did run the unit for sometime, but for the reasons indicated in the reply affidavit of respondent No. 5, respondent No. 5 did not run the unit beyond a period of about 5 to 6 weeks. We are not required to go into that dispute SCA/13945/2008 8/9 JUDGMENT because the dispute between respondent No.5 and workers was subject matter of proceedings before the Labour Court which culminated into Special Civil Application No. 28961 of 2007 and connected petitions before the learned Single Judge of this Court. The dispute between respondent No. 5 and the workers has already been settled as per the settlement dated 24.10.2008 and the same has been placed before the learned Single Judge in the aforesaid petitions. 14. Moreover, considering the amounts which respondent No. 5 has spent or is going to spend as indicated in the aforesaid details given in para-4 of the reply affidavit dated 4.12.2008 for and on behalf of respondent No. 5 (as recorded in para – 9 hereinabove), we are of the view that the offer made by the petitioner cannot be considered such as to draw any inference of fraud against the impugned transaction or to warrant any further investigation into the matter as to whether the sale of the assets of Arunoday Mills Ltd. by IDBI under the Securitisation Act in favour of respondent No. 5 on 12.7.2007 can be considered as fraudulent or not as contemplated in the decision of the Apex Court in Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. & Ors., 2008(11) Scale Page-287 and similar view taken by this Court in the judgments dated 12.9.2008 in OJ Appeal No. 248 of 2007 and another judgment dated 11.08.2008 in OJ Appeal No. 112 of 2008. We are not inclined to entertain the challenge against the confirmation of sale in favour of respondent No. 5 at this belated stage. 15. The appeal is, therefore, dismissed. 16. Before parting with the matter, we cannot help observing that in the terms and conditions of sale, IDBI did not invite two separate offers – SCA/13945/2008 9/9 JUDGMENT (i) the purchaser would be liable to run the unit as a going concern so that the employees of the closed mill would continue to get employment and (ii) the higher offer to purchase the assets of the closed mill without any such liability to run the unit as a going concern. If such offers were invited simultaneously, any party purchasing the assets for running the unit as a going concern and then failing to run the unit could have been saddled with the liability to pay the differential amount. And such differential amount would have been available to the secured creditors and the workers. IDBI and the other secured creditors must, however, thank themselves for the loss occasioned to them. In any view of the matter, since respondent No. 5 has already entered into the settlement with the workers on 24.10.2008 to pay Rs. 7.42 crores to the workers over and above Rs. 35 crores paid to IDBI and since respondent No. 5 is also held (by a separate judgment rendered by us today in Special Civil Application No. 13834 of 2008) to be liable to pay the dues of the statutory creditors of Arunoday Mills Ltd., like the arrears of sales tax (Rs. 2.76 crores plus interest thereon), we do not make any further observations in the matter. (MOHIT S. SHAH, J.) (HARSHA DEVANI, J.) mrpandya*