1 IN THE HIGH COURT OF JUDICUATURE AT MUMBAI ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 864 OF 2009 Chemical Mazdoor Sabha ) a Registered Trade Union under ) the Trade Unions Act, 1926, ) having its office at Shram Sadhna, ) Opposite Police Parade Ground, ) Raopura, Baroda. ).. ... Petitioner. VERSUS 1) Industrial Development Bank ) of India, I.D.B.I. Tower, WTC ) Complex, Cuffe Parade, ) Mumbai. ) 2) Stressed Assets Stabilisation ) Fund, through its Executive ) Trustee I.D.B.I., having office ) at 10th Floor, I.D.B.I. Tower, ) WTC Complex, Cuffe Parade, ) Mumbai. ) 3) The Official Liquidator, ) High Court, Bombay. ) 4) Punjab & Maharashtra Co-op. ) Bank Ltd., Sardar Pratapsingh ) Industrial Estate, LBS Marg, ) Bhandup (West), Mumbai. ).. ... Respondents. 2 -: ALONG WITH :- WRIT PETITION (LODG.) NO. 280 OF 2010 Navinon Employees' Forum ) 15, Gajmukh Society, Reckodia ) Lane, Borivali (West), Mumbai ) 400 092. )... ... Petitioner. VERSUS 1) Managing Director, ) Punjab & Maharashtra Co-op. ) Bank Ltd., 1, Sardar ) Pratapsingh Industrial Estate, ) L.B.S. Marg, Bhandup (West), ) Mumbai – 400 078. ) 2) Chairman, Stressed Assets ) Stabilisation Fund, 10th Floor, ) I.D.B.I. Tower, WTC Complex, ) Cuffe Parade, Mumbai-5. ) 3) The Official Liquidator, ) High Court, Bombay. ) 5th Floor, M. G. Road, Fort, ) Mumbai – 23. ) 4) Housing Development & ) Infrastructure Ltd., (HDIL), ) Dheeraj Arma, Anant Kanekar ) Marg, Station Road, Bandra ) (East), Mumbai – 400 051. ) 3 5) M/s. Navinon Limited (In ) Liquidation), through its ) Managing Director Shri Atulya ) Y. Mafatlal, 10, Altamount ) Road, Cumballa Hill, Mumbai ) 400 026. ... ... )... ... Respondents. Mr. J. P. Cama, Sr. Counsel i/by Mr. K. P. Anilkumar for petitioner in both the W.P. Mr. S. U. Kamdar, Sr. Counsel with Mr. Satish S. Shetye i/by M/s. Purnanand & Co., for Respondent No.4 in WP 864/09 and for Respondent No.1 in WP(L) 280/2010. Mr. Deepak M. Thakkar i/by Ms. Pragne Thakkar for Respondent No.2 in WP (L) 280/2010. Mrs. Pai for Official Liquidator. Mr. N. G. Thakkar, Sr. Counsel for Auction Purchaser. CORAM : F. I. REBELLO & J. H. BHATIA, JJ. RESERVED ON : 8TH MARCH, 2010 DELIVERED ON: 19TH APRIL,2010. JUDGMENT ( Per F. I. Rebello, J.) : 1. Rule in both the petitions. As pleadings are complete, by consent of the parties, heard forthwith. 4 2. The petitioner in Writ Petition No. 864 of 2009 is a registered Trade union, claiming to represent the employees of M/s. Navinon Limited, now in liquidation and for which Official Liquidator of this Court has been appointed as the Official Liquidator. 3. By the present petition the petitioner seeks to challenge the sale of securities in favour of respondent No.1 by respondent No.4 which have been assigned to respondent No.2 – Stressed Assets Stabilisation Fund. The principal contention of the petitioner is that the value of the Ranoli property is much higher than the rate which was mentioned in the tender notice and as such the respondents should not be permitted to proceed with the sale of the property. One of the reliefs prayed for, is to declare the sale of debt by assignment, if any, as illegal and impermissible in law. This plea is principally based on the judgment of the Gujarat High Court in O. J. Appeal No. 156 of 2007 arising from Company Application No. 489 of 2006 in Official Liquidator's Report No. 88 of 2006 and other matters. The learned Bench of the Gujarat High Court has taken a view that the assignment of debts in favour of Kotak Mahindra Bank Limited was violative of Section 23 of the Indian Contract Act. That judgment is 5 the subject matter of the Special Leave Petitions before the Supreme Court, where several directions have been given. 4. Writ Petition (Lodg.) No. 280 of 2010 is also by an another union claiming to represent the erstwhile workmen of the Company in liquidation. Though various contentions were raised in the petition, the principal contentions argued before this Court were the same as has been raised in Writ Petition No. 864 of 2009. In addition, apart from the sale of the property at Ranoli in the State of Gujarat, the petitioner also challenges the sale of the property at Sahad, Near Kalyan, Dist. Thane. 5. The sale was held pursuant to a public notice issued by the Punjab and Maharashtra Co-operative Bank Limited (hereinafter referred to as “PMC Bank”) for recovery of secured debt. In clause 12 of the tender notice, it was clearly set out that there are several liabilities pending against the Company in liquidation, such as workers dues, statutory dues and other creditors. The property was purchased by Housing Development and Infrastructure Limited (hereinafter referred to as “the HDIL”) and the sale in their favour 6 was confirmed by letter dated 23rd March, 2009 for a total consideration of Rs.180 crores. It was also set out that the possession of all the three units as defined in tender document located at Sahad- Kalyan, Tarapur and Ranoli will not be handed over prior to 27th July, 2009 i.e. 6 months from 28th January, 2009 as per the order of the Presiding Officer, Mr. K. J. Paratwar, Debts Recovery Tribunal II, Mumbai. By further communication dated 6th May, 2009 the PMC Bank informed the Official Liquidator that they had received the entire consideration amounting to Rs.180 Crores from the HDIL and requested the Official Liquidator to intimate to them the claims, of the workers which would rank Pari-Passu with their secured claim at the earliest to enable them to proceed in the matter. 6. A few other facts may also be set out. The company in liquidation had mortgaged its properties, which are the subject matter, of the present petition as also the property of Tarapur in favour of several financial institutions to secure repayment of loans advanced to the banks. One such financial institution was Industrial Development Bank of India (IDBI). A company petition being Company Petition No. 1176 of 2001 came to be filed in this Court 7 and by an Order dated 16th December, 2005 the Company was ordered to be wound up and the Official Liquidator of this Court was appointed as Official Liquidator of the Assets and Liabilities of the Company in liquidation. Respondent No.2, Stressed Assets Stabilization Fund (SASF) is a company constituted by the Government of India vide Trust Deed dated 24th September, 2004 for acquiring the stressed and non-performing assets of respondent No.1. Respondent No.2 had taken possession of the three immovable properties in pursuance of the powers vested under the Securitisation and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002 (Securitisation Act). In the Company Petition, in an application made, in the order dated 25th January, 2007, on behalf of SASF it was stated that it was a secured creditor and it would stand outside the winding up and that the property at Sahad, Boisar and Ranoli are mortgaged to SASF by the Company in liquidation. It was stated that SASF would take steps under the Securitization Act and take possession in accordance with the provisions of law. This Court observed that if steps are not taken within eight weeks, the court would direct the Official Liquidator to take such steps as are permissible under the Companies Act. By a further order of 19th 8 April, 2007, the Company Court observed that since steps have already been taken by SASF under the Securitization Act, no directions are warranted on the report of the Official liquidator. The Official Liquidator had sought permission to take possession of three units and to permit the secured creditors to appoint a valuer. The Court observed that these prayers are now infructuous in view of the action taken by SASF. Certain directions were also given to SASF. 7. By six Deeds of Assignment of Debts created/made by the said Banks in favour of PMC Bank, the said Banks sold, assigned, transferred and released to IDBI all of their rights, title and interest in and pursuant to the debts forever. In Company Application No. 1189 of 2008 filed by Navinon Employees Forum, in an order dated 11th September, 2008, the learned Company Judge observed that on behalf of the Union it was submitted that the information regarding the assignment in respect of the properties was not available to the workers and further observed that if the workers so desire they may approach the Official Liquidator who shall deal with the request in accordance with the law. The application made by the Union was accordingly disposed of. 9 8. IDBI thereafter have taken steps under the Securitization Act and had advertised sale of three units under Section 13 of the Securitisation Act and had complied with all the requirements of the Securitization Act as also the order of this Court dated 19th April, 2007. According to PMC Bank, IDBI had obtained valuation report from the Government approved valuer and had published tender for sale of the three immovable properties which was conducted by IDBI in the presence of the Official Liquidator on 22nd January, 2009. The Official Liquidator has not challenged the said sale. 9. In Company Application (Lodg.) No. 104 of 2009 moved by the Navinon Employees Forum, a declaration was sought that the assignment of the assets and debts by the Company in liquidation, the IDBI through SASF to PMC Bank is illegal and void and also sought a direction against PMC Bank not to take any further steps pursuant to the tender notice dated 20th December, 2008. The Court noted that the main ground was that the asset was grossly under valued. The Court observed that in that event the Applicants have a remedy of filing an appeal under Section 17 of the Securitization Act. 10 The Court further observed that this is in view of the fact that proceedings have been adopted by the respondents under the said Act. It was also noted that the PMC Bank did not dispute that the applicants have such a remedy. The Court further noted that assignment was challenged on the basis of a judgment of the Gujarat High Court n the case of Kotak Mahindra Bank Ltd. v/s Official Liquidator of M/s. APS Star Ind. Ltd. & Ors., referred to earlier. There were directions that the sale was not to be confirmed till 28th January, 2009 and further that if applicants move an application before the Debt Recovery Tribunal on or before 28th January, 2009, the sale would not be confirmed till the interim application in the appeal is decided and for a period of two weeks thereafter. Another application by the Chemical Mazdoor Sabha was disposed of in view of the disposal of the application made by Navinon Employees Forum. 10. In proceedings before the Debt Recovery Tribunal in Securitization Application No. 3 of 2008, there was an application by six applicants, who were aggrieved by the action of PMC Bank in taking possession of the three immovable properties on 11th October, 11 2007. Their contention was that this was in breach of their rights and in contravention of Section 13(9) of the Securitisation Act. It was their contention that they had filed application against the Company in liquidation for recovery of an amount of Rs.91 crores by liquidating hypothecated properties and that PMC Bank and SASF took possession of the three properties in total disregard to their claim over the hypothecated properties. The objection raised by the respondents were noted. Learned Presiding Officer noted that the applicants did not have any interest in the immovable properties and as such there is no contentious issue requiring consideration under the Securitization Act and respondent No.1 (PMC Bank) does not claim any right, title or interest in the hypothecated property, book debts and other movables of the Company in liquidation and admit that the same is the security of the applicants and that they would give six months time to the applicants for removing the security from the landed property. The application accordingly was disposed of. 11. It may also be mentioned that one Harshadkumar Sanatkumar Rawal filed a Special Civil Application No. 34 of 2009 before the High Court of Gujarat which came to he disposed of by order dated 12 15th January, 2009 after hearing the learned Counsel for the respondents therein. There a contention was raised that the petitioner could agitate their rights under the Securitization Act. In view of that the learned Counsel for the petitioner sought leave to withdraw the petition. 12. Another petition was filed before this Court by Navinon Employees' Forum being Writ Petition No. 2545 of 2007, which was withdrawn with liberty to approach the concerned financial institution. Yet another petition being Writ Petition No.1231 of 2006 had been filed by Navinon Employees' Forum where the grievance was made that their claims are pending before SASF and they have not yet been decided. This Court passed an order on 3rd May, 2006 directing SASF to consider the claims of the members of the petitioner and dispose them of according to law at any rate not later than 12 weeks from the date of the order. 13. The Chemical Mazdoor Sabha thereafter moved an application in March, 2009 before the Debt Recovery Tribunal and also took out a Misc. Application (St.) No. 30 of 2009 to challenge the sale. The 13 main relief in the application is for the declaration of tender notice as illegal and applied for waiver of the stamp duty. By an order dated 16th March, 2009 the Presiding Officer held that the applicants have to pay proper stamp duty as per clause (d) of the Notification dated 2nd February, 2007 and not Rs.2000/- as claimed by the applicant under clause 2(e) of the Government Notification dated 2nd February, 2007. On 24th march, 2009 the applicants moved the Registrar praying for formal order as union/workmen were unable to pay Rs.50,000/- as stamp duty. 14. Both the petitions raise identical issues. The first question that we have been called upon to answer is, “Whether when the petitioner has an efficacious remedy under Section 13(9) proviso to the Securitization Act, is it open to this Court to entertain this petition, considering the Rule of alternative remedy ?” We have already noted the various proceedings either taken out by the Navinon Employees Forum or the Chemical Mazdoor Sabha. The Union representing the workmen or the workmen themselves while withdrawing some of the proceedings did do so with a view to avail of the remedy available under the Securitization Act. This by itself in 14 our opinion disentitles the Union / workmen from invoking the extra ordinary jurisdiction of this Court. True, only because of an alternative remedy, this Court would not refuse the exercise its extra ordinary jurisdiction, considering the law decided by the Supreme Court and it is still open to a party to move / take recourse to the alternate remedy. Can it be said that the sale held is a nullity at law and consequently this Court should exercise its extra ordinary jurisdiction. In our opinion, this is not a case of nullity at law. All that has been set out is that the property has been sold for a price less than what it would have fetched. This would be clearly a question of fact. For that the Petitioners have an alternate remedy which they have invoked. 15. The second aspect is the judgment of the Gujarat High Court. Whether it can be said, that the sale under the Securitization Act can be said to be a nullity at law. We may now examine the Judgment of the Gujarat High Court to consider as to whether by applying the ratio of that judgment assuming that we adopt that ratio. Can it be said that the sale is a nullity at law. We have already referred to the number of the appeal 15 of Kotak Mahindra Bank Limited (supra) which judgment was pronounced on 12th January, 2009. The Special Leave Appeal against the same has been filed before the Honourable Supreme Court amongst them one was Special Leave to Appeal (Civil) No. 2240 of 2009, where the direction has been issued for listing the matter for final hearing with a further direction that on furnishing undertaking the Assignor bank and the Assignee Bank were permitted to participate in proceedings held by Asset Sales Committee as also proceedings before the Company Court without prejudice to their rights and contentions. There are some other directions. 16. On the facts of the present case, the question before us is, “Will the ratio of the judgment of the Gujarat High Court apply to the facts of the present case?” It appears that the Assignor bank there had assigned in favour of the Kotak Mahindra Bank Limited various debts. A company application being Company Application No. 489 of 2006 had been filed which was dismissed by the learned single Judge on 9th July, 2007. Appeal No. 1589 of 2007 was preferred by Kotak Mahindra Bank Ltd.. In the appeal, various questions were formulated. One question was, whether the Company Court was 16 right in expressing an opinion that separate stamp duty is required to be paid for each loan transaction as the same is a distinct transaction within the meaning of Section 5 of the Stamp Act. In view of the provisions of the Transfer of Property Act and the Registration Act the Court held that the Company Court was right in so holding. The Appellant, the banking company had approached the Company Court seeking to be substituted in place of respondent No.9 bank there. The basis of the application was the Deed of Assignment executed on 31st March, 2008 by ICICI Bank Ltd. with Kotak Mahindra Bank Ltd. by which a basket of debts of the Assignor Bank along with underlying security interest, if any, had been assigned/transferred on “as is where is” and “as is what is” basis. A preliminary objection was raised on behalf of the Official Liquidator and the argument was that substitution could not be allowed. The Division Bench of the Gujarat High Court addressed itself to the issue as to whether it was open to the ICICI Bank Ltd. to transfer the non-performing assets and whether Kotak Mahindra Bank Ltd. could purchase such NPAs/Debts, by the Deed as a business or a part of the business of the bank, in light of the provisions of the Banking Regulations Act, 1949. The learned Bench considered the provisions of Transfer of Property Act, 17 provisions of the Banking Regulations Act and other provisions. On consideration of the various contentions, the learned Bench noted the scheme of the Securitisation Act, would indicate that it was enacted as there was no legal provision for facilitating securitisation of financial assets of banks and financial institutions. The Court held that under the provision of the Banking Regulation Act, the assignors were not entitled to transfer the debts, with or without security and that only specified activities as laid down in the Banking Regulations Act and subsequent to the Securitization Act are permissible. The Court noted that the Securitization Act in Chapter III provides for empowering the banks and financial institutions to take possession of the securities and to sell such securities without the intervention of the Court. Considering the transaction and the fact of the case, the Court held that the transaction was hit by provisions of Section 23 of the Contract Act. 17. Coming to the facts of the present case, the assets had been mortgaged in favour of respondent No.1, which were taken over by SASF which in turn had sold them to PMC Bank Ltd. In other words, it is a transaction under the provisions of the Securitization Act 18 unlike what was the subject matter before the Gujarat High Court. The question, therefore, of considering whether the transaction is void under Section 23 of the Indian Contract Act would not arise. The Judgment relied upon, therefore, would clearly be distinguishable. 18. Having said that we are of the opinion that as the order does not amount to nullity and even otherwise there is no merit in the writ petition, the same is dismissed. 19. We, however, make it clear that dismissal of this petition will not in any way bar the remedy of the workers for recovery of their claims considering the provisions of Section 13(9) of the Securitization Act. The proviso itself provides that the amount recovered from the sale of security assets shall be distributed in accordance with the provisions of Section 529-A of the Companies Act. The PMC Bank Ltd. itself has noted that the workers have a pari passu claim under Section 529-A of the Companies Act. Considering the provisions, it is the Official Liquidator, who has now to take steps in terms of the proviso to Section 13(9) of the Securitization Act. The 19 workers thus will have to file their claim before the Official Liquidator who will ascertain the claim and considering the amount available distribute the same pro-rata amongst the workers depending on their claims. Considering that the matter has been going on for a long time, the Official Liquidator is directed to invite the claims, if not already invited, and thereafter to proceed according to law as expeditiously as possible. 20. With the above observations, Rule in both the writ petitions discharged. Both the Writ Petitions are dismissed. 21. In the circumstances of the case, there shall be no order as to costs. Sd/- (F.I. REBELLO,J.) Sd/- (J. H. BHATIA, J.)