IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY APPLICATION No 445 of 2000 IN COMPANY PETITION No 121 of 1995 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- O.N.G.C. LTD. Versus O.L. OF AMBICA MILLS CO. LTD. -------------------------------------------------------------- Appearance: 1. COMPANY APPLICATION No. 445 of 2000 MR KAMAL TRIVEDI, SENIOR COUNSEL AND ADDL.ADVOCATE GENERAL WITH MR KM THAKAR FOR M/S TRIVEDI & GUPTA AND MR AJAY MEHTA for Applicant - ONGC. MR ASHOK L SHAH for Respondent No. 1 MR JT TRIVEDI for Respondent No. 2 MR BJ TRIVEDI for Respondent No. 2 NOTICE SERVED for Respondent No. 3-7,9 MR MRUGESH JANI for Respondent No. 4 SINGHI & CO for Respondent No. 8 MR DS VASAVADA for Respondent No. 10 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE D.A.MEHTA Date of decision: 1/10/2004 CAV JUDGEMENT 1 This application by way of Judge's Summons is moved by Oil and Natural Gas Corporation Limited (hereinafter referred to as 'ONGC') praying for following reliefs : (A) That this Hon'ble Court may be pleased to direct the respondent herein to make payment to the applicant herein viz. Oil and Natural Gas Corporation Ltd., a Government of India Undertaking ("ONGC" for short) towards the outstanding dues amounting to the tune of Rs.1799.367 lakhs, as on 28.02.98 (with further interest thereupon till the date of payment/till the date of realisation) for Natural Gas supplied to M/s.Ambica Mills Company Limited (in liquidation) i.e. the Company (in Liquidation). (B) That this Hon'ble Court may be pleased to grant an injunction restraining the respondent and/or his agents, officers, servants from making any payment/disbursement in any manner out of any of the sale proceeds that are available from the sale of assets/properties of the M/s.Ambica Mills Company Ltd. (in liquidation) hereinafter referred to as "the Company (in Liquidation), (C) That this Hon'ble Court may be pleased to grant an injunction restraining the respondent herein, and/or his agents, officers, servants from creating any charge, encumbrance, alienation and/or disposing off the immovable assets of the company (in liquidation) which are presently in charge of the respondent, (D) That this Hon'ble Court may be pleased to direct the Respondent to make payment of Rs.22.52 Lakhs (being the initial instalment deposited by the purchaser of Plot No.307 TPS-16 belonging to M/s.Ambica Mills Company Limited (in liquidation) which has been disposed off for Rs.90.11 Lakhs) to the ApplicantONGC pursuant to the order passed by the Hon'ble Supreme Court which are annexed hereto with the Affidavit in support of Judges Summons filed by the Applicant-ONGC, (E) That such other and further orders and directions as may be deemed fit and proper may be passed in favour of the applicant herein". Originally, when the application was moved there was only one respondent viz. Official Liquidator of M/s.Ambica Mills Co.Ltd., (in liquidation). Thereafter, the applicant was permitted to join Secured Creditors as party respondents by the Court by its order dated 06/12/2000. On 27/02/2001 a statement came to be made on behalf of the Secured Creditors/Workmen that a Review Application was pending before the Hon'ble Apex Court regarding the alleged claim of the applicant ONGC. Thereafter, the matter was adjourned from time to time and on 09/04/2002 the Official Liquidator was directed not to disburse any amount till disposal of the Review Petition. 2 The learned Addl.Advocate General placing heavy reliance on the order dated 15/04/1987 submitted that the said order was followed by orders dated 06/04/1993, 17/10/1997 and 26/07/2001 which unequivocally established that ONGC was a Secured Creditor in relation to its dues arising out of gas supplied to the Company in liquidation. It was submitted that in all there were 18 orders passed, as compiled and filed along with affidavit dated 15/09/2004. That after ONGC succeeded in appeals before the Hon'ble Supreme Court it staked its claim in case of various Companies in liquidation by moving various applications before this Court or getting itself impleaded in various applications moved by Textile Labour Association or Secured Creditors seeking disbursement of funds realised by Official Liquidator from the assets of various Companies in liquidation including Company in liquidation in the present application. That the present application and various other applications were kept pending by this Court awaiting outcome of the Review Petition preferred by Textile Labour Association. 3. The Review Petition preferred by the Textile Labour Association has thereafter been decided by the Hon'ble Apex Court on 12/04/2004 and the said decision is reported as Textile Labour Association and Another Vs. Official Liquidator and Another (2004) 9 SCC 741. In light of the said decision the learned Advocates appearing for the respective parties have made their submissions : On behalf of the Workmen and the Secured Creditors it was submitted that ONGC has no right to stake a claim and the application requires to be rejected as ONGC is neither a Secured Creditor nor does it have any preferential right, over the claims of the Secured Creditors and the Workmen. On behalf of ONGC it was submitted that considering order dated 15/04/1987 of Hon'ble Supreme Court in Misc. Petitions Nos. 7875 of 1987 to 7885 of 1987 in Civil Appeals No.8530 of 1983 to 8540 of 1983 ONGC was a Secured Creditor like any other Secured Creditor and it had a preferential right; in light of the subsequent order dated 6/4/1993 its right was absolute. It was further submitted that the Official Liquidator had moved Review Application being I.As.No. 168 of 1997 to 178 of 1997 in Civil Appeals No.8530 to 8540 of 1983 and by virtue of order dated 17/10/1997 made by Hon'ble Supreme Court therein the dues of ONGC are required to be paid off first and the question of making any payment to any other creditor can arise only out of the surplus, if any, remaining after the full dues of ONGC have been paid off. 4. In light of the aforesaid submissions Mr.Sandeep Singhi, learned Advocate appearing on behalf of Industrial Credit And Investment Corporation of India Ltd. (ICICI), one of the Secured Creditors, raised a preliminary objection that the present application filed by ONGC was limited in its prayer regarding direction to the Official Liquidator to make payment and the Court should not decide as to whether ONGC was or was not a Secured Creditor. Mr.K.B.Trivedi, learned Senior Counsel and Addl.Advocate General appearing on behalf of ONGC submitted that the application was filed in 2000 i.e. at a point of time when judgment dated 12/04/2004 in the case of Textile Labour Association (supra) was not available. That in light of findings recorded in paragraph No.11 of the said judgment it was necessary that the said controversy should be resolved and the applicant was specifically requesting the Court to decide the same. It was submitted that he was making a statement under instructions. 5. A brief resume of historical facts. ONGC in the course of its business of marketing and supplying industrial gas to various consumers made supply of natural gas to the Company in liquidation. It appears that some time in 1979 when the contract entered into by ONGC with various gas consumers was to expire, ONGC revised the price upwards and as a consequence dispute arose in relation to the price of gas to be charged by ONGC since 1979 onwards. The gas consumers of ONGC formed an Association viz. Association of Natural Gas Consumers Industries and filed a writ petition in this High Court. The High Court by an interim order directed ONGC to supply gas at the old rate of Rs.504/- per 1000 cubic metres. Subsequently by order dated 29/10/1982, the High Court increased the interim price to Rs.1000 per 1000 cubic metres. The petitions came to be decided by the High Court on 30/07/1983 and the enhanced price sought to be charged by ONGC was not approved and the writ petitions came to be allowed. ONGC filed appeals before the Hon'ble Apex Court and by interim orders ONGC was directed to supply gas at Rs.1000 per 1000 cubic metres. Thus, in effect the interim orders made by the High Court continued to remain in operation. By judgment dated 04/05/1990 the Hon'ble Supreme Court upheld the price fixation by ONGC and allowed the appeals filed by ONGC. The said judgment is since reported at 1990 (Supp) SCC 397. 6 During pendency of appeals on 15/04/1987 Hon'ble Apex Court passed an order directing ONGC not to disconnect the supply of gas to the consuming industries subject to an undertaking to be filed by the consuming industries that the said consumers will not charge, encumber or alienate, except with the leave of the Apex Court, any of their immovable assets, included in the respective undertakings and that the consumers will make their immovable assets, available for discharging the respective liabilities on account of the difference in the price of all the gas supplied during the pendency of the appeals as determined by order made by the Court while disposing of the appeals. 7 In the judgment rendered in case of Textile Labour Association (supra) the petitioner before the Hon'ble Supreme Court contended that the petitioners were not parties to the proceedings before the Supreme Court and on passing of the winding up order on 17/01/1997 the provisions of the Companies Act,1956 (hereinafter referred to as 'the Act') will come into force and will be effective in light of the decisions of the Supreme Court in case of UCO Bank Vs.Official Liquidator, High Court, Bombay (1994) 5 SCC 1, Industrial Credit And Investment Corporation of India Ltd. Vs. Srinivas Agencies and others, (1996) 4 SCC 165, Allahabad Bank Vs. Canara Bank and Another, (2000) 4 SCC 406, A.P.State Financial Corporation Vs. Official Liquidator, (2000) 7 SCC 291. On behalf of the petitioners it was submitted that order dated 17/10/1997 was required to be recalled and/or modified. The order made by the Hon'ble Apex Court on 17/10/1997 reads as under : "All that is necessary to be said is that out of the assets of the Company under liquidation, the dues of ONGC Ltd., are required to be paid off first and the question of making any payment to any other creditor can arise only out of the surplus, if any, remaining after the full dues of ONGC Ltd. have been paid off. The High Court is, therefore, to proceed with the matter in this manner. IAs stand disposed of." On the basis of the aforesaid order ONGC had staked its claim seeking to be paid off first and, hence, the Review Application was moved by the Textile Labour Association. 8. On behalf of ONGC, at the hearing of the Review Petitions it was contended that once the Hon'ble Apex Court had issued mandamus as to priority of claims in the matter of payment such mandamus will prevail over any law. The Apex Court negatived the said contention and in paragraph No.11 stated that : " xxx order made by this Court on 17/10/1997 in IAs Nos.168-78 of 1997 in Civil Appeals Nos.8530-40 of 1983 will have to be read subject to provisions of Sections 529 and 529-A of the Companies Act". It is this direction which has given rise to the present controversy between the parties. 9. The learned Addl.Advocate General submitted that: [1] By virtue of various orders of Supreme Court from 15/04/1987 ONGC has been treated as a Secured Creditor. [2] The very orders of the Supreme Court seek to confer preferential position to ONGC in recovery of its dues. [3] Without prejudice, in any event ONGC has to be given preferential treatment in the matter of recovery of its dues over all Financial Institutions who claims to be Secured Creditors and, [4] None of the orders commencing from 06/10/1983 to 26/07/2001 are set aside by the Supreme Court while deciding the Review Petition filed by TLA, the only order which is disturbed is order dated 17/10/1997. In support of the aforesaid propositions the learned Addl. Advocate General submitted that ONGC was compelled to supply gas by interim orders but the same was with a rider. That by interim orders the Consumer Industries were permitted to get supply subject to the undertaking to be filed by them. Therefore, but for the conditional order ONGC would not have supplied the gas or the supply would have been at the price fixed by ONGC. The supply therefore was under aegis of the orders of the Supreme Court and the recovery of its dues was virtually assured through the process of the Court. That the effect of such conditional orders was to create a definite security in favour of party for its protection and, hence, ONGC was entitled to be treated as secured creditor in terms of Sections 529 & 529A of the Act. 9.1 That by order of 6/4/1993 Supreme Court had laid down the mode and the manner in which ONGC was entitled to recover amounts due to ONGC from various industries including Company in liquidation. That as already seen, even by subsequent order of 17/10/1997 ONGC was to be paid off first and therefore on a conjoint reading of various orders passed by the Supreme Court the right of ONGC to recover its dues was absolute and unfettered; it was a right akin or superior to the right of a Secured Creditor. That such right could not be taken away or whittled down by anything, much less an act whereby the Company has been ordered to be wound up for its inability to discharge its liabilities. Thus, the right as contemplated under Sections 529 & 529A of the Act cannot undo the right which had crystallized in favour of ONGC by virtue of the orders of the Court. 9.2. That even otherwise ONGC cannot be equated with either Secured or Unsecured Creditors as the act of supplying gas was not of free volition but under orders of the Court. 9.3 Alternatively, it was pleaded that ONGC was entitled to be treated at par with a Secured Creditor and thus entitled to prorata share from the amount which was available for disbursement. 9.4 A further alternative contention was that right of ONGC was equivalent to the right conferred on the Workmen by virtue of provisions of Sections 529 & 529A of the Act and it be held that ONGC was entitled to pari passu distribution from the funds available with the Official Liquidator. 9.5 Strong reliance was placed on definition of the term "Secured Creditor" by referring to Stroud's Judicial Dictionary, Fifth Edition Volume 5, Black's Law Dictionary, Sixth Edition, P.Ramanatha Aiyar's The Law Lexicon, 2nd Edition 1997. It was submitted that the Act did not contain any definition of Secured Creditor and hence as per provisions of Section 2(e) of The Provincial Insolvency Act,1920 which defines -'Secured Creditor': means a person holding a mortgage, charge or lien on the property of the debtor or any part thereof as a security for a debt due to him from the debtor" That as per the said definition, even if for a moment it was stated that there was no charge or mortgage in favour of ONGC on the properties of the Company in liquidation at least there was a lien considering the undertaking filed before the Apex Court and hence ONGC was a Secured Creditor. 9.6 The learned Addl.Advocate General urged that ONGC be held to be a Secured Creditor entitled to seek prorata distribution along with other Secured Creditors and/or Workmen in light of the provisions of Sections 529 and 529A of the Act. 10 Mr.J.T.Trivedi, learned Advocate appearing on behalf of Bank of India i.e. one of the Secured Creditors, submitted that Bank of India had also filed a Review Petition in the Supreme Court of India and there were number of Review Petitions filed by different Secured Creditors. This submission was made in context of the contention raised by learned Addl.Advocate General that a Review Petition filed by ICICI came to be dismissed as withdrawn on 16/10/2001. Mr.J.T.Trivedi submitted that Review petition being I.As.No.300 to 310 of 2002 were filed by Bank of India and the same came up for hearing on 21/01/2003 wherein notice has been issued and thereafter ONGC has been granted time to file reply. It is stated that the said Review Petition is pending as on today. Affidavit dated 20/9/2004 of Shri K.K.Nair, Assistant General Manager, Ahmedabad Recovery Branch has been placed on record. 10.1 Responding to the submission regarding undertaking having been filed by the Management of the Company in liquidation at the relevant time before the Apex Court it was submitted by Mr.J.T.Trivedi that the property in question was already under charge created in favour of the Secured Creditor and if there was any failure/deficiency in filing the said undertaking, it was at the end of the person who filed such an undertaking, in not disclosing the pre-existing charge in relation to properties of the Company in liquidation. In the circumstances, even if ONGC was to be treated as a Secured Creditor a question as regards priority would arise : As to who amongst Secured Creditors is the first charge holder and who is the next in queue. 10.2 It was further submitted that the Legal Maxim "ACTUS CURIAE NEMINEM GRAVABIT - which means an act of the Court shall prejudice no man was applicable in case of not only the Workmen but also the Secured Creditors. That the Apex Court could not have passed an order, in a litigation emanating from a contract between ONGC and its Consumers, so as to cause prejudice to third parties viz. the Secured Creditors. This was in fact according to Mr.J.T.Trivedi made clear by the Apex Court when it observed in paragraph No.7 of its judgment rendered on 12/04/2004 in the case of Textile Labour Association (supra), that exercise of power under Article 142 cannot ignore any substantive statutory provision dealing with the subject and the exercise has to be so as to do complete justice between the parties. 10.3. Mr.J.T.Trivedi further submitted that all the preceding orders merged into the last order dated 12/04/2004 and hence also ONGC was not entitled to stake a claim on the basis of any of the previous orders which now no longer independently survive. 10.4. That even otherwise, ONGC was not entitled to state that it was a Secured Creditor in light of specific provision of Section 125 of the Act. Elaborating on the said submission he contended that any charge which is not registered as stipulated under Section 125 of the Act was void against the Liquidator and any Creditor of the Company. That ONGC had not been able to point out as to whether the so called charge, on the basis of which it was claiming preference as a Secured Creditor, was registered or not, and in light of such failure ONGC should not be treated as a Secured Creditor. In this context Mr.J.T.Trivedi invited attention to the use of the words "if any" in paragraph No.10 of the Judgment dated 12/04/2004 in the case of Textile Labour Association (supra) rendered by the Apex Court to contend that the said words had been used to denote that claims of ONGC had to be worked out in accordance with Sections 529 & 529A of the Act subject to the claims being in accordance with and fulfilling statutory requirements. That reliance by ONGC on the definition of the term "Secured Creditor" from various legal dictionaries could not assist the case of ONGC when there was a statutory requirement under Section 125 of the Act. 10.5. Lastly reliance was placed on case of Allahabad Bank Vs. Canara Bank and another, AIR 2000 SC 1535 to submit that Secured Creditor has an option to remain outside winding up proceedings and in such circumstances Secured Creditor is required to permit the Liquidator to enforce the charge on the security of the Secured Creditor to the extent of the Workmen's portion and the term "workmen's portion" had been defined in Section 529(3)(c) of the Act. That if the aforesaid principles are applied, ONGC has no right to claim any portion qua the security of the Secured Creditor when such a Secured Creditor has remained outside winding up, in absence of any statutory provision. 11. Mr.D.S.Vasavada, the learned Advocate appearing on behalf of Textile Labour Association submitted that order dated 17/10/1997 made by the Apex Court was in the Review Application filed by the Official Liquidator wherein the Workmen and the Secured Creditors were not joined as a party; and hence the need for preferring the Review Application by the Textile Labour Association which came to be decided by the Apex Court on 12/04/2004 in the reported decision in case of Textile Labour Association (supra). 11.1 That even if the entire bunch of orders compiled by ONGC are taken into consideration all that the said orders show and establish is that ONGC was a supplier of gas, there was a dispute between ONGC as a supplier and its consumers and whether in light of the terms of the contract between ONGC and its consumers ONGC was entitled to any higher price for the gas supplied by it. In support of the submission he invited attention to order dated 26/07/2001 made by the Apex Court permitting ONGC to charge and recover interest on its unpaid dues on the basis of clause Nos.5.01 and 5.02 of the contract between ONGC and its consumers. It was further submitted that the orders were made by this Court and the Apex Court in Writ Petitions filed by the Consumers and appeals filed by ONGC. In the entire litigation the workmen and the Secured Creditors were never involved. 11.2 Mr.Vasavada placed heavy reliance on paragraph Nos. 7 and 8 of the judgment dated 12.04.2004 in the case of Textile Labour Association (Supra) to contend that the Apex Court had not only not issued any mandamus as was being claimed by ONGC but it had made itself very clear that there was no mandamus and the earlier order dated 17/10/1997 of the Apex Court was to be read subject to provisions of Sections 529 & 529A of the Companies Act. That if the provisions of Sections 529 & 529A of the Act are read together and applied to the facts of the case it was apparent that ONGC was not a Secured Creditor. 11.3 That even if it was accepted for the sake of argument that ONGC was a 'State' within the meaning of Article 12 of the Constitution of India it could at best claim to be a Statutory Creditor, or an Authority but by no means it was a Secured Creditor as understood within the meaning specifically applicable under the Act. That even if it was treated as a Statutory Creditor the claim of ONGC would fall under Section 530 of the Act and hence, there was no reason to give any priority to ONGC. 12. Mr.Sandeep Singhi, learned Advocate appearing on behalf of ICICI Bank Limited raised a preliminary contention that considering the prayers for reliefs made in Judge's Summons the Court was not required to decide as to whether ONGC was or was not a Secured Creditor. 12.1 Mr.Singhi submitted that ONGC was claiming priority on the basis of order dated 17/10/1997 which now no longer survives in light of the subsequent order of 12/04/2004 and both the orders were made by the Apex Court and if any party, including ONGC, had any doubt the proper Forum for seeking a clarification was the Apex Court. 12.2 It