Company Appeal Nos.1 & 2 of 2009 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. 1.Company Appeal No.1 of 2009 The Pradeshiya Industrial and Investment Corporation of UP Limited (PICUP) PICUP Bhawan, Gomit Nagar, Luckhnow (UP). ...Appellant Versus C.M.Jain, Ex Managing Director, M/s La Medical Devices Limited and others ...Respondents 2.Company Appeal No.2 of 2009 M/s La Medical Devices Limited ...Appellant Versus C.M.Jain, Ex.Managing Director, M/s La Medical Devices Limited and others ...Respondents Date of Decision: 12.5.2010 CORAM: HON'BLE MR.JUSTICE ASHUTOSH MOHUNTA HON'BLE MR.JUSTICE MEHINDER SINGH SULLAR Present:- Mr.Salil Sagar, Senior Advocate with Mr.Samarth Sagar, Advocate for the appellant-PICUP. Mr.Anand Chhibbar, Advocate for respondent No.1. Ms.Divya Sharma,Advocate for Official Liquidator-respondent No.2. Mr.I.P.Singh and Mr.Rohit Sapra, Advocates for respondent No.3. Mr.Inderjit Sharma, Advocate for respondent No.4. M ehinder S ingh S ullar , J. As identical questions of law and facts are involved, therefore, we propose to dispose of the aforesaid appeals, which have arisen out of the same impugned order, by this common judgment, in order to avoid the repetition. However, for facilitation, the bare minimum facts that need a necessary mention have been extracted from Company Appeal No.1 of 2009. 2. The matrix of the facts, culminating in the commencement of, Company Appeal Nos.1 & 2 of 2009 2 relevant for disposal of present appeals and emanating from the record, is that the appellant-Company The Pradeshiya Industrial and Investment Corporation of UP Limited (for short “the PICUP Company”) incorporated under the Companies Act, 1956 (for brevity “the Act”) had advanced a term loan of Rs.90 lacs to M/s La Medical Devices Limited (hereinafter to be referred as “the LMDL Company”). In the wake of Company Petition No.42 of 1999, the LMDL Company was ordered to be wound up by this Court, vide order dated 7.4.2004. An Official Liquidator was, accordingly, appointed. He ultimately took over all the assets of the Company. Thereafter, on the application of the Liquidator, learned Company Judge ordered the sale of its assets. After publishing the sale notice in the various newspapers, this Court confirmed the sale in favour of M/s FCS Software Solutions Limited for Rs.1.47 crores, being the highest bid. 3. It was claimed that the original promoter of the Company feeling aggrieved by the said auction, as being much below the market value, filed objection petition i.e. CA No.365 of 2004. On the said objections and application filed by others, the learned Company Judge, after noticing the bids of other bidders and the submission of original promoter for re-auction, directed the Official Liquidator not to hand over the possession of the property. Thereafter, the learned Company Judge ordered for re-advertisement to sell the property of the company (in liquidation) for a reserve price of Rs.2.10 crores, vide order dated 16.2.2006. According to the appellant, needless to say that the previous auction purchaser M/s FCS Software Solutions Limited filed Company Appeal No.10 of 2006 and a Division Bench of this Court, while issuing notice of motion to the respondents, directed that fresh offers, in pursuance of the advertisement, may be received, but the bid shall not be finalized. The property of the company was to be put to re- auction under the orders of the Court, vide method of inviting tenders and ultimately highest bid to the tune of Rs.3.50 crores was received from respondent No.1, who was an Ex-Managing Director of LMDL company (in liquidation). Company Appeal Nos.1 & 2 of 2009 3 4. According to PICUP-Company, the learned Company Judge accepted the highest bid of M/s Nice Society, which was to the tune of Rs.3.50 crores, vide order dated 23.3.2006. Thereafter, on the basis of CM No.25 of 2007 moved by the auction purchaser in Company Appeal No.10 of 2006, he was impleaded as party being the highest bidder/auction purchaser of the property of the company (in liquidation). After the appeal filed by M/s FCS Software Solutions Limited was dismissed, the auction purchaser filed an application for confirmation of sale in his favour. Needless to say that said M/s FCS Software Solutions Limited preferred a civil appeal against the order of the Division Bench of this Court, which was dismissed by the Hon'ble Supreme Court. Further, the learned Company Judge, vide order dated 21.8.2008 passed in various company applications, confirmed the sale and directed that the possession of the property be handed over to the auction purchaser. 5. The case further proceeds that during the course/period of confirmation of sale, Ex Managing Director and Promoter of LMDL Company entered into One Time Settlement (hereinafter to be referred as “OTS”) with all the creditors. It is a matter of fact that the LMDL Company also entered into the OTS proposal dated 27.2.2007 (Annexure A3) with PICUP Company for a total sum of Rs.132 lacs against a term loan of Rs.90 lacs. Consequently, regular agreement dated 19.10.1997 (Annexure A4) was executed between the parties in this respect with certain terms and conditions mentioned therein. The LMDL Company made the payment of Rs.97 lacs to PICUP Company, in pursuance of OTS scheme (Annexure A3) and agreement (Annexure A4). 6. The LMDL Company claimed that having made the payment in pursuance of OTS scheme to all the creditors now, it stepped into the shoes of secured creditors and is entitled for the amount already paid by it from its own sources discharging the liability of principal debtor. 7. In order to achieve the desired results, C.M.Jain Ex Managing Company Appeal Nos.1 & 2 of 2009 4 Director of LMDL Company moved an application before the learned Company Judge for directing the Official Liquidator to pay to the creditors (respondent Nos.2 to 4) the balance amount from the sale proceeds amounting to Rs.3.50 crores of assets of the company (in liquidation), which has been left as per the OTS scheme arrived at and also to pay to it the amount already deposited with the creditors on entering into OTS scheme as it has stepped into the shoes of creditors/secured creditors, invoking the provisions of Rules 6 and 9 of the Companies (Court) Rules, 1959 read with section 151 CPC. 8. The PICUP Company contested the application and filed short reply only to the effect that as it has already cancelled the OTS proposal having been not availed in time, vide letter dated 25.11.2008 (Annexure C2/1), so it cannot be enforced and prayed for dismissal of the application. 9. The learned Company Judge held that since the Managing Director of LMDL Company has paid more than Rs.97 lacs and plus two drafts of Rs.47,71,330/- were handed over to the learned counsel for PICUP Company, it was deemed appropriate that the PICUP Company be directed to accept the balance amount alongwith interest accrued thereon in terms of OTS scheme notwithstanding the expiry of OTS. 10. Sequelly, the learned Company Judge directed the Punjab and Sind Bank to lodge its claim with the Official Liquidator and the Official Liquidator was directed that on receipt of the claim from the bank and if the bank is a secured creditor he will release the balance amount of Rs.75,84,949/- to the bank within two weeks thereafter, vide impugned order dated 22.12.2008. 11. Neither the PICUP Company nor the Official Liquidator felt satisfied with the impugned order and filed the above mentioned appeals. That is how, we are seized of the matter. 12. Assailing the impugned order, at the very outset, the learned counsel for the appellant-PICUP Company has contended with some amount of vehemence Company Appeal Nos.1 & 2 of 2009 5 that as OTS proposal between both the parties was cancelled, vide letter (Annexure C2/1), therefore, the learned Company Judge did not have the jurisdiction to direct its implementation. The argument further proceeds that the provision of OTS scheme lacks statutory sanction and the same cannot be enforced by the Court of law. In support of his contention, the learned counsel for the appellant has placed reliance on judgments of Hon'ble Apex Court in case Official Trustee, W.B. and others v. Sachindra Nath Chatterjee and another AIR 1969 Supreme court 823 and of this Court in cases CWP No.2224 of 2005 titled as “M/s Saini And Co.Rice Mills etc. v. State of Punjab decided on 3.9.2009 and Knitex Overseas Pvt. Ltd. v. State Bank of Patiala and others (2008-1) P.L.R. 143. 13. Hailing the impugned order, on the contrary, the learned counsel for respondent No.1 has urged that the Ex-Managing Director of LMDL Company (in liquidation) has already entered into the OTS scheme (Annexure A3) and the agreement (Annexure A4) was duly executed between the parties and paid almost the entire agreed amount. Thus, the learned Company Judge has the jurisdiction and rightly enforced the OTS scheme. The argument is that since the PICUP Company has already received approximately the entire amount in pursuance of the OTS scheme, so, no interference is warranted in the interim impugned order in this respect. 14. We have heard the learned counsel for the parties and have gone through the record with their valuable assistance. 15. In the judgments relied on behalf of the appellant in cases Central Bank of India v. Ravindra and others (2002) 1 SCC 367 and Corporation Bank v. D.S.Gowda and another (1994) 5 SCC 213, after considering the provisions of the Banking Regulation Act, 1949 and guidelines of Reserve Bank of India, it was observed that “there is no provision under the SIDBI Act, 1989 or under the State Financial Corporation Act, 1951 comparable to the provisions of Sections 21 and 35A of the Banking Regulation Act, 1949. In the absence of such analogous Company Appeal Nos.1 & 2 of 2009 6 provision, the guidelines issued by the SIDBI are not binding on the Financial Corporation.” 16. Sequelly, in Knitex Overseas Pvt.Ltd.'s case (supra), after interpreting the provisions of sections 21 and 35A of the Banking Regulations Act, 1949, it was observed that “One Time Settlement Scheme issued by the Reserve Bank of India do not have any statutory roots. Therefore, such schemes do not confer any statutory right on a borrower to seek their enforcement by issuance of a mandamus.” 17. Possibly, no one can dispute in regard to the crux of law laid down in the aforesaid judgments but the same are not applicable to the present controversy, particularly when Hon'ble Apex Court in case M/s Sardar Associates & Ors. v. Punjab & Sind Bank & Ors. JT 2009 (10) SC 410 has now ruled that “circular/guidelines issued by the Reserve Bank of India are binding and One Time Settlement Scheme can be implemented.” 18. In the instant case, it is not a matter of dispute that the Managing Director has entered into OTS scheme with all the creditors of LMDL Company (in liquidation) including the PICUP Company. The OTS scheme (Annexure A3) was incorporated and the agreement (Annexure A4), containing interest and penal clause between both the parties, was executed, vide which, the term loan of Rs.90 lacs granted to the borrower by way of financial assistance, was settled for a total amount of Rs.132 lacs. By now, approximately the entire amount has already been received by the PICUP Company in pursuance of OTS scheme/agreement. Thus, it would be seen that the facts of the case are neither intricate nor much disputed. 19. Such thus being the legal position and record, now the core question, that arises for determination in these appeals, is whether the OTS scheme (Annexure A3) and agreement (Annexure A4) can be enforced or not? 20. Having regard to the rival contentions of the learned counsel for the parties and having gone through the record with their valuable help, we are of the Company Appeal Nos.1 & 2 of 2009 7 considered opinion that OTS scheme (Annexure A3) and agreement (Annexure A4) can legally be enforced and there is no merit in these appeals. 21. The main celebrated argument of the learned counsel for the appellant-PICUP Company that the Company Court did not have the jurisdiction to decide such question of implementation of OTS scheme/agreement, which lacks the statutory sanction, is neither tenable nor the observations of Hon'ble Supreme Court in Official Trustee, W.B.'s case (supra) are at all applicable to the facts of this case, in which, a settlor of a trust reserved to himself the power to vary the terms and conditions of the Trust so far as they related to the quantum of interest given to each of the beneficiaries after the death of the settlor “by his instrument by will alone and in no other way or act”. The settlor administered the trust property for sometime and thereafter thought of effecting by deed inter vivos certain changes in the trust. To enable him to do so he took out an originating summons on the original side of the Calcutta High Court under Chapter XIII of the Original Side Rules of that Court seeking primarily two reliefs viz. (1) to have the Official Trustee, Bengal appointed as the Trustee in his place and (2) to empower him to alter the clause relating to variation of the quantum of interest given to each of the beneficiaries by a deed inter vivos. What the settlor asked for was the Court's permission to revoke the clause in the Trust deed empowering him to alter the quantum of interest given to each of the beneficiaries “by will alone” and in its place to confer upon him power to make the said alteration by deed inter vivos. The Court in specific terms ordered the revocation and granted the authority sought for. On the peculiar and in the circumstances of that case, it was observed that “the said order was outside the jurisdiction of the Court. The same would not come to the rescue of PICUP Company. 22. Section 446 (1) of the Companies Act postulates that “when a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if Company Appeal Nos.1 & 2 of 2009 8 pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of and subject to such terms as the Company Court may impose.” 23. Sequelly, section 446 (2) of the Act provides that “Company Court shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of any suit or proceeding by or against the company, any claim made by or against the company (including claims by or against any of its branches in India; any application made under section 391 by or in respect of the company; any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or rise in course of the winding up of the company, whether such suit or proceeding has been instituted or is instituted or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 and nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.” 24. As is evident from the record, since the LMDL Company has already been wound up by the order of this Court and the Official Liquidator has already taken over possession of its assets, so, the learned Company Judge has the jurisdiction to decide the enforcement of OTS Scheme/agreement in this relevant behalf, as contemplated under section 446 of the Act. 25. The other argument of the learned counsel for PICUP Company that the entire amount of OTS scheme was not paid within the agreed period and since the PICUP Company has cancelled the OTS proposal, vide letter (Annexure C2/1), so, it cannot be implemented, is again not tenable. As per OTS scheme, the entire amount was required to be paid till 26.6.2007 and the PICUP Company took a hasty step in canceling it, vide letter (Annexure C2/1). The agreement (Annexure A4) contained a clause of penal interest in case of default and the Managing Company Appeal Nos.1 & 2 of 2009 9 Director of LMDL Company has already paid the amount alongwith penal interest and under these circumstances, the OTS scheme can be enforced. Reliance in this regard can be placed on the judgment of Hon'ble Supreme Court in case State Bank of India v. Vijay Kumar AIR 2007 Supreme Court 1689. 26. Likewise, a Division Bench of this Court in case Sat Kartar Ice and General Mills v. Punjab Financial Corporation 2008 (1) ISJ (Banking) 248 has held that “if a borrower failed to adhere to the agreed time schedule but paid the agreed amount though belatedly and paid interest for delayed payment, then the High Court has the jurisdiction to restore and implement the One Time Settlement between the parties.” 27. Similarly, in CWP No.15032 of 2005 titled as “Vijay Kumar v. State Bank of India and another, decided on 26.5.2006, the matter was settled between the petitioner and the bank before the Lok Adalat and in pursuance of the compromise, the petitioner deposited the amount, though belatedly. It was observed by this Court as under:- “This Court feels that by depositing Rs.2,00,000/- within the stipulated period, the petitioner has shown his intention to comply with the terms and conditions of the compromise, may be due to some financial constraint, as has been alleged by the petitioner, he was not in a position to deposit the remaining amount of Rs.8,00,000/- within the time limit fixed vide compromise Annexure P-5. However, subsequently, he has already deposited Rs.8,45,000/- with the Debt Recovery Tribunal, as such it cannot be said that the petitioner had no intention to comply with the terms and conditions of the compromise. No doubt, he has committed a default but at the same time, it is true that he has paid the entire amount under the compromise, rather Rs.45,000/- more have been paid towards interest. In these circumstances, we feel that the petitioner's default deserves to be condoned. However, to settle equities, it is made clear that the petitioner is bound to pay interest at the rate of 10.40 % per annum (simple) for the defaulted period to the Company Appeal Nos.1 & 2 of 2009 10 respondent- Bank. For the said purpose, he had already deposited Rs.45,000/- with the Debt Recovery Tribunal. The respondent-Bank is granted liberty to withdraw the said amount. If any amount still remains to be paid, the Bank will raise a demand in that regard within fifteen days from the date of receipt of copy of this order. The petitioner shall then pay the same within one month thereafter. The observations of the aforesaid judgments “mutatis-mutandis” are applicable to the facts of the present case. 28. Moreover, once the PICUP Company has received the substantial (approximately entire) amount in pursuance of the OTS agreement, in that eventuality, it is estopped from denying the OTS and it cannot possibly be saith that the OTS agreement is not enforceable, as urged on its behalf. 29. There is another aspect of the matter, which can be viewed from a different angle. Again, it is not a matter of dispute that in pursuance of the OTS scheme (Annexure A3), the agreement (Annexure A4) between the parties was duly executed, which is enforceable under the law. The contention of the learned counsel for the PICUP Company that as the OTS scheme (Annexure A3) has already been revoked vide letter (Annexure C2/1), therefore, the agreement (Annexure A4) cannot be enforced, is not only devoid of merits, but misplaced as well. Section 5 of the Contract Act posits that “a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards and an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.” Meaning thereby, once the OTS proposal (Annexure A3) was incorporated in agreement (Annexure A4), then the same cannot legally be revoked and the parties to such contract are legally required to perform their respective promises as contemplated under Chapter IV of the Contract Act. If any party breaches the contract, then he will face the consequences and aggrieved party would be entitled for compensation for loss or damage caused by breach of Company Appeal Nos.1 & 2 of 2009 11 contract under Chapter VI of the Contract Act. Therefore, we are of the considered view that once the OTS proposal (Annexure A3) has been matured into agreement (Annexure A4), then the PICUP Company was not legally competent to revoke the same, under the present set of circumstances. Therefore, the learned Company Judge has rightly implemented the OTS scheme between the parties. Hence the contrary arguments of the learned counsel for PICUP Company “stricto sensu” deserve to be and are hereby repelled, in the obtaining circumstances of the case as above indicated legal provisions are the complete answer to the problem in hand. 30. Now adverting to the second appeal filed by the Official Liquidator of the LMDL Company (in liquidation), the solitary argument on his behalf that the Punjab & Sind Bank has not registered its claim with the Official Liquidator till date and if the impugned order is implemented and the amount is paid to the bank then other creditors would be deprived of their shares of the consideration amount, is not tenable, because the following direction was issued by the learned Company Judge in this respect to safeguard the interests of other creditors :- “The Official Liquidator on receipt of the claim from the bank and if Bank is a secured creditor will release the balance amount of Rs.75,84,949/- to the bank within two weeks thereafter. The bank will also file an undertaking with the Official Liquidator that the bank shall refund the entire amount to the Official Liquidator, if so directed. The bank will also pay interest accrued thereon as may be directed by this Court. This disbursement to the bank shall, however, remain subject to the final adjudication made by the Official Liquidator and in the event if any amount is found not payable to the Bank and is required to be returned to the Official Liquidator, the bank will do so. This fact will also be indicated in the undertaking that bank will file with the Official Liquidator.” 31. Meaning thereby, the learned Company Judge has directed the payment, only if the bank is a secured creditor and not otherwise and also safeguarded the interests of all the parties, which would be decided at the time of Company Appeal Nos.1 & 2 of 2009 12 final adjudication of the matter. In that eventuality, the bank was also directed to return the amount alongwith interest. Thus seen from any angle, we are of the considered opinion that the learned Company Judge has rightly ordered the conditional release of the indicated amount to the bank. 32. As indicated earlier, the entire amount of Rs.90 lacs obtained by the LMDL Company (in liquidation) was settled for a total amount of Rs.132 lacs. Since the Managing Director of LMDL Company has already paid more than Rs.97 lacs and handed over two drafts of total balance amount of Rs.47,71,330/- to the counsel for PICUP Company in the Court, so, the learned Company Judge was legally right to implement the OTS scheme (Annexure A3)/agreement (Annexure A4) in the obtaining circumstances of the case. No other illegality has been pointed in the impugned order out by the learned counsel for the PICUP Company and Official Liquidator. 33. No other point, worth consideration, has been urged or pressed by the learned counsel for the parties. 34. In the light of the aforesaid reasons, as there is no merit, therefore, the instant appeals are hereby