OJA/14220/2008 1/14 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 142 of 2008 In OFFICIAL LIQUDATOR REPORT No. 12 of 2006 With CIVIL APPLICATION No. 218 of 2008 In O.J.APPEAL No. 142 of 2008 With O.J.APPEAL No. 137 of 2008 In OFFICIAL LIQUDATOR REPORT No. 12 of 2006 With CIVIL APPLICATION No. 201 of 2008 In O.J.APPEAL No. 137 of 2008 With O.J.APPEAL No. 113 of 2008 In OFFICIAL LIQUDATOR REPORT No. 12 of 2006 With CIVIL APPLICATION No. 144 of 2008 In O.J.APPEAL No. 113 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ========================================= 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 ? OJA/14220/2008 2/14 JUDGMENT ========================================= STATE BANK OF INDIA - Appellant(s) Versus OFFICIAL LIQUIDATOR OF COMMERCIAL AHMEDABAD MILLS CO. & 7 - Opponent(s) ========================================= Appearance : MR RM DESAI for Appellant(s) : 1, NOTICE SERVED BY DS for Opponent(s) : 1 - 2, 6, MR BHARAT JANI for Opponent(s) : 3, 5, NOTICE NOT RECD BACK for Opponent(s) : 4, 8, MR SUNIT SHAH, GOVERNMENT PLEADER for Opponent(s) : 7, ====================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 26/09/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1. All the appeals have been taken up for hearing and disposal together as admittedly they arise out of common order made by the Company Court in Official Liquidator Report No.12 of 2006 with Company Application No.575 of 2006 decided on 28th March, 2008. As the parties have referred to the documents from papers of O.J. Appeal No.142 of 2008, the said Appeal has been treated as the lead matter and the brief facts necessary for the present, have been taken from the said Appeal. The appellant of O.J. Appeal No.142 of 2008 is State Bank of India, a secured creditor of the OJA/14220/2008 3/14 JUDGMENT Company (in liquidation), Commercial Ahmedabad Mills Company Ltd. The appellant of O.J. Appeal No.113 of 2008 is the Textile Labour Association, while O.J. Appeal No.137 of 2008 has been filed by the Official Liquidator. 2. The company (in liquidation) was ordered to be wound up on 11.10.1989 vide order made in Company Petition No.117 of 1989. It appears that prior thereto on 31st August, 1976 the land owner, namely, the Mills Company filed Form No.I under Section 6(1) of Urban Land (Ceiling and Regulation) Act, 1976 ( hereinafter referred to as 'ULC Act') in relation to the land bearing Survey No.39 and 41 of Dariyapur Kazipur, Ahmedabad. On 31st December, 1982, notice under Section 8(3) of ULC Act was issued to the erstwhile Company and was stated to have been received by the said Company. On 31st December, 1983, the erstwhile Company replied to the said notice inter alia stating that there was construction on the land in question and application made under Section 20 of the ULC Act to the State Government was pending. 3. Admittedly, pursuant to order of winding up, on 4.12.1989 the Official Liquidator took possession of the assets of the Company. Thereafter, on different dates notices under different provisions of the ULC Act are shown to have been OJA/14220/2008 4/14 JUDGMENT issued and served according to the competent authority on the Official Liquidator and according to the Official Liquidator, the notices were addressed to the erstwhile Company and not to the Official Liquidator. In light of the view that the Court is inclined to adopt, it has not been found necessary to enter into any discussion on the respective contentions in this regard leaving it open for the parties to raise their respective contentions. Suffice it to state that, according to the competent authority under the ULC Act, possession of the land in question was taken over on 15.5.1992. 4. Before the Company Court on 3.12.1999 sale of plant, machinery and other movables of the Company (in liquidation), came to be confirmed. Similarly, vide order dated 5.2.2003, the Company Court confirmed the sale of building and superstructure standing on the land. On 16.1.2006 an advertisement was issued for sale of land in question and on 13.2. 2006, the Official Liquidator tendered report vide OLR No.12 of 2006 for confirmation of sale in relation to land admeasuring approximately 27,741 Sq.meters. The Official Liquidator also prayed for ratification of his action in impleading the State Government in the said proceedings of the report filed by him. OJA/14220/2008 5/14 JUDGMENT 5. After hearing the parties, the Court formulated the following three questions :- “ Questions raised before the Court for its determination are as to whether competent authority under the ULC Act was required to obtain leave under Section 446 of the Companies Act, before initiating proceedings under ULC Act, more particularly, from the stage of Section 10(5) onwards of the Act and what would be the effect or consequences of such proceedings if leave is not obtained. The second question needs to be answered is whether alleged possession acquired by the State Government under ULC Act can be sustained despite the fact that actual and physical possession of the land in question is found with the Official Liquidator. Lastly, if the actual and physical possession is with the Official Liquidator, can it be protected by virtue of the provisions contained in the ULC Repeal Act?” 6. Thereafter, Company Court has proceeded to determine the matter only on the basis of operation of Section 446 of the Companies Act, 1956('the Act' for short) and effect of Section 42 of the ULC Act. The Company Court has, thereafter, considered the Apex Court's decision in the case of Allahabad Bank Vs. Canara Bank and another reported in (2000) 4 SCC 406 for the purposes of determining the issue. The Company Court has also considered the object and purpose of the ULC Act. The effect of Section 42 of the ULC Act has been OJA/14220/2008 6/14 JUDGMENT considered on the basis of the judgment of the Apex Court in the case of State of West Bengal and others Vs. Pranob Kumar Sur and others reported in (2003)9 SCC 490 to come to the conclusion that pendency of proceedings under the Companies Act shall not be a bar to affect the provisions of ULC Act. Lastly, the Company Court has considered the effect of Urban Land(Ceiling and Regulation ) Repeal Act, 1999. 7. Though the parties have addressed the Court at length on merits and demerits of the impugned order, it is not necessary to record and deal with the respective contentions raised on merits of the issue in light of the view that the Court is inclined to adopt. Furthermore, any expression of opinion, even, prima facie, might result in prejudice to one or the other party and hence the elaborate submissions made on behalf of the parties as to the true scope and purport of provisions of ULC Act, the powers of the competent authority, etc. are issues on which the Court does not intend to make any observations, leaving it open to the parties to raise the issues at appropriate time. 8. The impugned order made by the Company Court cannot be sustained for the reasons following hereinafter. Judgment and order dated 28th March, 2008 is quashed and set aside OJA/14220/2008 7/14 JUDGMENT and OLR No.12 of 2006 with Company Application No.575 of 2006 stands restored to file of the Company Court for de novo adjudication and recording of fresh decision in accordance with law. 9. The aforesaid course of action was disputed by the learned Government Pleader based on provisions of Section 107 of the Code of Civil Procedure, 1908 ('C.P.C 'for short) read with Order 41 Rule 25 of the Code. It was submitted that, firstly, before exercising the power of remand available under the aforesaid provisions, the Court was required to frame issues as stipulated by Clause (c) of Sub-Section (1) of Section 107 of C.P.C and there was no case made out for seeking such an order. 9.1 That in fact such an order was not pleaded and urged by any of the appellants and, therefore, the Court should not exercise its suo motu powers in this regard considering that all the issues raised by the parties have been dealt with by the Company Court. That in the event, the parties had not pleaded any issue before the Company Court, the impugned order should not be faulted on the ground that the Company Court has not dealt with such an issue. It was submitted that the powers of the Appellate Court would only extend to the OJA/14220/2008 8/14 JUDGMENT subject matter, namely, what was decided by the Court of original jurisdiction and it was not open to the Appellate Court to go beyond the subject matter of Appeal. 9.2 That even Rule 25 of Order 41 of CPC specifically required that where it appeared essential to Appellate Court for arriving at a right decision upon merits, the Appellate Court should frame issues and refer the same for trial to the Court from whose decree, the Appeal is preferred. Alternatively, it was pleaded that the Court may keep the appeal pending and remand the matter only in relation to the issue which the Appellate Court found, was necessary to be determined by the Company Court, without disturbing the order which was in favour of the respondent State- Government. 10. On behalf of appellant Textile Labour Association and appellant State Bank of India, the secured creditor, it was submitted by learned advocate Mr.D.S.Vasavada and learned advocate Mr.R.M.Desai that provisions of Section 529A of the Act fasten a pari passu charge in relation to the charge of the secured creditor on the properties of the Company (in liquidation) and the object for which the said provision had been brought on statute book was required to be considered OJA/14220/2008 9/14 JUDGMENT before any final decision could be recorded by the Company Court in favour of one or the other party. Therefore, there should be no order of limited or partial remand as prayed for by respondent-State Government. 11. The contention on behalf of the State Government that without framing issues, no order of remand should be made, cannot be countenanced. Similarly, any order of partial or limited remand would not only create multiplicity of proceedings by keeping the present appeal pending but may result in restricting the scope of powers available to the Company Court and also cause prejudice to one or the other party. Hence,even this contention does not merit acceptance. 12. On a plain reading of the provisions of Section 107 of C.P.C., it appears that the powers of the Appellate Court are co-terminus and co-extensive with the powers of the Court of original jurisdiction and Clauses (a) to (d) of Sub-Section (1) of Section 107 of C.P.C cannot be read to mean that such powers are restricted in any manner whatsoever. It is in this context that operation of Rule 25 of Order 41 of C.P.C. will have to be considered. In fact, even in the said provisions, the powers available are of discretionary nature when one considers the words “the Appellate Court may, if necessary, OJA/14220/2008 10/14 JUDGMENT frame issues,”. Meaning thereby, there is no compulsion that before exercising power of remand, the Appellate Court must frame issues and direct the trial Court to decide only such issues. 13. Section 529-A of the Act opens with a non-obstante clause and stipulates that notwithstanding anything contained in any other provisions of the Act or any other law for the time being in force in the winding up of a Company, workers' dues and debts due to secured creditors, shall rank pari passu and shall be paid in priority to all other debts. Therefore, the said provision has an overriding effect not only qua the provisions of the Act but also any other law for the time being in force. Section 529-A of the Act was inserted on the statute book vide Act No. 35 of 1985 with effect from 24.5.1985 and, therefore, would override all other provisions of the Act as well as any other law in force on the said date. 14. Therefore, prima facie, provisions of Section 42 of ULC Act cannot claim primacy over provisions of Section 529-A of the Act considering the fact that ULC Act was brought on statue in 1976 while Section 529-A of the Act is a subsequent legislation brought on statute book in 1985. Possibly this aspect of the matter, may not have been brought to the notice OJA/14220/2008 11/14 JUDGMENT of the Company Court. However, the jurisdiction vested in a Company Court is a special jurisdiction and considering the true scope and object of the provisions of Section 529-A of the Act, Official Liquidator functions under the directions of the Company Court and acts for and on behalf of the Company Court, primarily to ensure that the interest of workmen of a Company ( in liquidation) do not go unrepresented and are taken care of. This salutary feature of functioning of Company Court could not have been overlooked by the Company Court while determining the issue in question. 15. In fact, when Section 529-A of the Act was proposed to be introduced vide Companies (Amendment) Bill, 1985, the statement of object and reasons provided as under :- “ Another announcement made by the Finance Minister in his Budget speech relates to the decision of the Government to introduce necessary legislation so that legitimate dues of workers rank pari passu with secured creditors in the event of closure of the company and above even the dues to Government. The resources of the companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate even of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product OJA/14220/2008 12/14 JUDGMENT of their labour and effort. It is accordingly proposed to amend Sections 529 and 530 of the Companies Act and also to incorporate a new Section in the Act, namely Section 529A vide clauses 4, 5 and 6 of the Bill).” 16. In case of T.L.A. Vs. Official Liquidator reported in 2004(3) GLH 416, the Apex Court was called upon to decide the true scope of provisions of Section 529-A of the Act in light of the priority claimed by Oil and Natural Gas Commission on the basis of an order made by the Apex Court in favour of ONGC. The Supreme Court has laid down as under:- “8. The effect of Sections 529 and 529-A is that the workmen of the Company become secured creditors by operation of law to the extent of the workmen's dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under Section 529-A to the extent of the workmen's dues. The purpose of Section 529-A is to ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the Company and the assets of the Company would remain charged for the payment of the workers' dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except Section 529-A. This Section overrides preferential claims under Section 530 also. Under Section 529-A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to OJA/14220/2008 13/14 JUDGMENT be treated as prior to all other dues. 9. Therefore, the law is clear on the matter as held in UCO Bank's case that Section 529-A will override all other claims of other creditors even where a decree has been passed by a Court. 10. Therefore, claims, if any, of O.N.G.C. will have to be worked out in accordance with Sections 529 and 529-A of the Companies Act as well. The contention advanced on behalf of O.N.G.C. by Shri Raju Ramchandran that if a mandamus had been issued, it will prevail over any law is not tenable and is rejected.” 17. Thus what is the effect of provisions of Section 529-A of the Act have to be necessarily considered by the Company Court in every matter where the properties/assets of the Company (in liquidation) are claimed by a person other than secured creditors and workmen. The Company Court could not have decided the matter as if the issue was only a dispute between the land owner and the competent authority under the ULC Act. It is equally well settled in law that though procedural compliance is required to be established in justification of an action, yet at the same time, mere form over substance cannot be preferred. 18. In light of the view that the Court has adopted, it has not OJA/14220/2008 14/14 JUDGMENT been found necessary to enumerate and deal with various judgments cited by both the sides on merits of the controversy as to applicability or otherwise of provisions of the ULC Act. It will be open to the parties to raise all contentions that may be available on facts and in law before the Company Court. 19. Accordingly, all the appeals are allowed in aforesaid terms and the impugned order dated 28th March, 2008 is quashed and set aside for recording a fresh decision de novo in accordance with law. Order passed in OJ.C.A. No.144 of 2008 with OJ.C.A. No.201 of 2008 with OJ.C.A. No.218 of 2008 In light of the view that the Court has taken in the appeals, these Civil Applications have been rendered infructuous and are rejected accordingly. (D.A. Mehta, J.) (Bankim N. Mehta, J.) sudhir