State Of U.P. & Ors vs M/S. Swadeshi Plytex Ltd. & Ors

2. Respondent No.1, M/s. Swadeshi Polytex Limited (hereinafter referred to as "SPL") a company registered under the Companies Act, 1956 and presently a sick unit has its registered Office at Kavi Nagar, Industrial Area, 2 Ghaziabad. Concededly approximately 33% of the shares of the SPL are held by Swadeshi Cotton Mills Limited, Kanpur (a unit of the National Textile Corporation, a Government Enterprise) about 28% and 15% by M/s. Paharpur Cooling Towers Limited and some financial institutions respectively, and the remaining 23% or so by the general public. It is on record that the CMD of the National Textile Corporation Ltd. is holding the charge of SPL and steps are underway for the rehabilitation of the company. It appears that till year 1996-97, SPL was doing reasonably well whereafter a financial crisis seems to have set in, forcing its closure on 30th September 1998. As SPL was unable to pay the wages due to its employees, several applications were filed by its workmen under the provisions of the Uttar Pradesh Industrial Peace (Timely Payment of Wages) Act, 1978 (hereinafter called the 1978 Act). A recovery certificate was thereafter issued under sub-section (1) of Section 3 of the 1978 Act and pursuant thereto, the Company was called upon to make good the wages due to the workmen 3 and on its inability to do so, the authorities proceeded to recover the amounts due as arrears of land revenue. A report was thereafter submitted by the Amin on 7th January 2005 which was endorsed by the Sub-Divisional Magistrate, Ghaziabad in his communication dated 10th February 2005, whereupon an attachment notice in Form 73-D was issued and a proclamation for the sale of the property on 23rd February 2005 was also ordered. The proclamation was however cancelled by the SDM, Ghaziabad and on re-consideration, an order dated 1st April 2005 was passed and the Tehsildar, Ghaziabad was directed to hold the auction on 2nd May 2005 after giving wide publicity and after the properties had been properly valued. A fresh proclamation was accordingly issued by the Sub-Divisional Magistrate, Ghaziabad on 1st April 2005 itself, without disclosing the details of the properties or their estimated value as also the date of the auction. An auction notice was, however, published in "Amar Ujala" on the 22nd April 2005 indicating that the estimate value of the properties was about 27 Crores and 4 that the transfer of the property pursuant to the auction would be made on the terms and conditions stipulated by the U.P. State Industrial Development Corporation (hereinafter called the UPSIDC) the present appellant. It is also the case of the appellant herein that the personal service of the sale proclamation was also made on the Chowkidar of the SPL on 21st April 2005. The auction was in fact held on the stipulated day i.e. 2nd May 2005 and the UPSIDC was found to be the highest bidder. The recovery certificate issued by the Deputy Labour Commissioner and the auction notice dated 22nd April 2005 was challenged by SPL by way of Writ Petition No. 35005 of 2005 referring to the irregularities in the issuance of the sale proclamation and the auction notice and it was prayed that the proceedings be quashed. A reply was filed in response to the Writ Petition but the petition was ultimately dismissed with the observation that repeated attempts to recover the dues had failed on account of the recalcitrant attitude of SPL and that the procedural defects which had been pointed out could be 5 challenged by filing objections under Rule 285 (i) of the Uttar Pradesh Zamindari Abolition & Land Reforms Rules, 1952 (hereinafter called the "Rules"). Several objections were accordingly filed with respect to the auction and the preceding events, but the Commissioner, Meerut Division, in his order dated 24th June 2005 dismissed the objections. Aggrieved by the order dated 24th June 2005, SPL preferred a revision petition before the Board of Revenue under section 293 of the U.P. Zamindari Abolition and Land Reforms Act, 1950 (hereinafter called the "Act") read with Section 219 of the Land Revenue Act but this petition too was rejected by order dated 9th September 2005. This order was challenged before the Lucknow Bench of the Allahabad High Court in Writ Petition No.5160/2005 and it was prayed, inter-alia, that the aforesaid order and the order dated 24th June 2005 be set aside and that the entire auction proceedings dated 2nd May 2005 be quashed. The High Court in its interim order dated 20th September 2005 directed the SPL to deposit a sum of Rs.50 Lacs 6 within a period of 30 days and in the meanwhile, directed that the sale be not confirmed. Aggrieved by the order dated 20th September 2005, the employees of the SPL filed a Special Leave Petition and in its order dated 5th December 2005, this Court directed that if the writ petition was not disposed of in the course of the week, the interim order passed by the High Court would stand vacated. The High Court, however, in its judgment dated 3rd January 2006 allowed the writ petition with costs of Rs.50,000/- and also passed strictures against the officers of the State Government who had been instrumental in arranging the auction. It is against this order that three Special Leave Petitions have been filed which are SLP (Civil) No.3272/2006 (U.P. State Industrial Development Corporation & Anr. Vs. M/s. Swadeshi Plytex Ltd. & Ors.), SLP (Civil) No.2858/2006 (M/s. Swadeshi Polytex Ltd. Karamchari Kalyan Sangh vs. M/s. Swadeshi Polytex Ltd. & Ors.) and SLP (Civil) No.21002/2006 (State of U.P. & Ors. Vs. M/s Swadeshi Polytex Ltd. & Ors). All these matters are being disposed 7 of by this judgment with the basic facts being taken from the first mentioned appeal.

3. The learned Single Judge, at the very first instance, dealt with the preliminary objections raised during the course of the hearing that in view of the Division Bench judgments of the High Court dated 13th January 2005, 4th May 2005 and 26th May 2005, it was not open to the SPL to contend at this stage that the recovery proceedings including the procedure adopted was not maintainable in law. The Court observed that W.P. No.50571/2002 had been filed by M/s. Paharpur Cooling Towers Pvt. Ltd. and Ors. in which SPL had been arrayed as respondent No.6 and the proceedings relating to the issuance of the recovery certificates by the Deputy Labour Commissioner under sub-section (1) of Section 3 of the 1978 Act had been questioned, but the Division Bench had dismissed the Writ Petition observing that as the petitioner therein i.e. M/s. Paharpur Cooling Tower Pvt. Ltd. was pursuing the matter with the Company Law Board and had availed of an alternative remedy, the 8 writ petition was not maintainable. The Court also observed that the matter had been taken by M/s. Paharpur Cooling Towers Ltd to the Supreme Court and an interim order dated 7th February 2005 had been made directing the petitioner to deposit a sum of Rs.5/- Crore in favour of the Registrar General of this Court, but this amount had not been deposited and the Special Leave Petition had been dismissed on 24th February 2005. The Court accordingly held that in this view of the matter, it was clear that no order against SPL had been made by this Court in the above mentioned SLP. The learned Judge then went into the scope and effect of W.P.No.35005/2005 filed by SPL impugning the auction notice dated 22nd April 2005 and observed that this petition had been dismissed with the observation that it would be open to SPL to avail of the alternative remedy available under rule 285(i) of the Rules. The Bench also noted that the third writ petition, filed by one Jitendra Khaitan (Writ Petition No.36736/2005) once again challenging the validity of the auction notice dated 22nd 9 April 2005 had been filed and this writ petition too had been dismissed with the observation, inter-alia, that in the light of the order in Writ Petition No.35005/2005, the petitioner herein could also avail the alternative remedy by filing objections under rule 285(i) of the Rules. The Court accordingly rejected the prayer of the respondents before it that in view of the aforesaid writ petitions, the writ petition was not maintainable. The Court then examined the submission as to whether the procedure envisaged for recovery of arrears under the Act and the Rules had been observed and in case they had been breached, the effect thereof and after examining the various provisions threadbare, held that the Act and Rules prescribed a procedure for the recovery of arrears of land revenue and that before a recovery certificate could be issued, the defaulter was required to be effectively served, that the Rules in question were mandatory and required strict compliance and in conclusion highlighted that there was no material on record to show that any attempt had been made to serve 10 the demand notice on SPL, and service on the Chowkidar was clearly not proper service on the defaulter. The Court also observed that auction sale was liable to set aside for the additional reason that a clear 30 days notice of the proposed auction had not been given even if the service on the Chowkidar was held to be appropriate. The Court also held that the sale proclamation issued on 2nd May 2005 was not valid and did not comply with the provisions of rule 285, 286 and 283 of the Rules and that the proclamation that had been issued was only of Rs.1.10 Crores and did not provide for the full amount as envisaged under rule 245, which provided an opportunity to the defaulter to make good the payment so as to avoid the sale of the property. The Court also held that on facts, it was impossible for the auction- purchaser i.e., the UPSIDC to have procured the Bank Drafts from the Punjab National Bank, Kanpur on the day of the auction so as to make the deposit of the 25% of the sale price at the fall of the hammer as the auction had been conducted at Meerut, about 460 Kms. away 11 from Kanpur and that the balance 75% of the amount due on the auction had also been deposited late i.e. on 18th May 2005 which again was contrary to rule 285-D of the rules. The Court also observed that it appeared that the property had been sold at a price far below its market price and in conclusion, passed strictures against the district authorities which had conducted the auction and sale of the property in question thus quashing the order dated 9th September 2005 passed by the Board of Revenue, the order dated 24th June 2005 of the Commissioner as well as the auction sale proceedings dated 2nd May 2005 conducted by the Tehsildar, Ghaziabad with costs of Rs.50,000 and all consequential relief, and a direction that it would be open for the State Government to recover the costs from the salary of the officers who were responsible "for the auction of the property in question in such unruly manner" by holding an enquiry and that the Chief Secretary was advised to take appropriate action against the defaulting officers. 12

15. We must, therefore, repel Mr. Dwivedi's argument that as SPL had suffered no prejudice in the auction proceedings, the sale should not be interfered with.

17. For this additional reason as well, the auction sale cannot be maintained.

18. In this view of the matter, we need not go into the argument raised by Mr. R.F. Nariman that in the facts of the case we should not entertain this matter in the exercise of the discretionary jurisdiction under Article 136 of the Constitution of India.

19. We also notice from the last paragraph of the judgment of the learned Single Judge appears to have been extremely annoyed with what he perceived to be gross irregularities on the part of the officers of the State Government connected with the sale of the property and he had accordingly directed as under:

20. We are of the opinion, however, that High Court's direction that action should be initiated against the concerned officers, is not justified and we accordingly expunge these directions more particularly as SPL's conduct as well does it no credit. We, however, maintain the directions in so far as the costs are concerned. With this minor modification, the appeals are dismissed.