Case: State Of W.Bengal  Vs. Pronab K. Sur

In the year 1976, the 2nd Respondent by name Sur Enamel & Stamping Works (Private) Ltd. (hereinafter to as Company), filed a declaration under the ULC Act. In the year 1991, the Company totally suspended its operations on account of financial and marketing problems. It may be stated that the assets of the Company viz. the factory building, plant and machinery, contiguous land etc. were mortgaged to United Bank of India through equitable mortgage and the Bank filed a suit in the year 1992 for recovery of money by enforcing the mortgage. The Company filed an application under Section 20 ULC Act on 18.6.1991 seeking exemption of excess vacant land held by it on the ground that part of the vacant land had to be necessarily sold for discharging the dues and for revival of the Company. As the things stood thus, a creditor of the Company by name Eastern Coal Agency, filed Company Petition No. 90 of 1992 in the High Court of Calcutta for winding up the Company on the ground of its inability to discharge the debts. The said petition was admitted on 16th March, 1992. However, further proceedings including advertisement were stayed subject to the condition of the Company paying the amount due to the creditor in instalments. The instalments could not be paid by the Company as directed. While so, the Company came forward with a scheme application purportedly under Sections 391(1) & 391(6) of the Companies Act. The scheme envisaged payment being made to the creditors by sale of a portion of the Companys land measuring 20 bighas. The learned Judge dealing with the Company Petition rejected the application by an order dated 22.12.1993 on the ground that the property was mortgaged to the Bank and the scheme was not feasible. Simultaneously, directions were given for advertisement of the winding up petition. At this stage, we may mention that this order of the learned Company Judge has been wrongly referred to in the pleadings of both the parties as an order directing winding up of the Company. Moreover, in the judgment under appeal, the learned Judge wrongly assumed that the order dated 22.12.1993 was passed on the application of one of the creditors to sell the property. We would like to clarify that the question of sale did not arise at that stage because the winding up petition was still under adjudication. We have already indicated the nature of application filed before the Company Judge, on a perusal of the original record of the High Court.3. Against the order dated 22.12.1993 passed in the Company Application, an appeal was preferred before the Division Bench, which is A.P.O. No. 21 of 1994. The Company placed before the Division Bench an offer from the 6th Respondent, namely, Chatterjee Management Services (P) Ltd. (hereinafter to as the CMS Ltd.) to purchase 15 bighas of vacant land the consolidated price of Rs. 3.90 crores provided it was transferred free from all charges and encumbrances and necessary permissions/approvals from the Court, secured creditors and the Urban Ceiling authorities were obtained. The Company prayed for confirmation of proposed sale of approximately 20,000 square metres to C.M.S. Ltd. The Division Bench of the High Court noted that according to the proposal of C.M.S. Ltd., the dues to the Bank and others creditors will be cleared and arrears of salaries to workmen will be paid and the balance of about one crore could be utilized by the Company for revival of industry. The said proposals of the Company and C.M.S. Ltd. were accepted by the Division Bench by an order dated 16.1.1996. The learned Judgesthe facts and circumstances of the case we accept and confirm the offer of Chatterjee Management Services (P) Ltd. in view of the fact that the State is facing acute unemployment problem and here in an industrialist who has come forward with an offer, which appears to be a very much lucrative and which will serve the interest of the workmen as also to liquidate the creditors dues, namely, Banks dues, and when all the interested parties supported this without any qualification, this is also in public interest to accept the said4.2.1997, the Division Bench passed a further order in the Company Appeal. The Court, having noted that CMS Ltd. had approached the State Government for getting clearance under ULC Act, directed the State Government to pass appropriate orders in that behalf.4. Taking the cue from the proceedings in Company Appeal, the 2nd Respondent Company filed writ Petition No. 383 of 1997 challenging the notice issued under Section 10(5) of the ULC Act and the subsequent notice issued by the Calcutta Improvement Trust. Direction was sought to restrain the authorities concerned from giving effect to the vesting order. By that time, the application filed under Section 20 of the ULC Act was rejected by the State Government by an order dated 6.2.1995. Thereafter, various steps were taken under the ULC Act. The excess vacant land was finally determine as 19,904 sq. meters. Notification under Section 10(3) was published on 24.7.1995. Notice under Section 10(5) calling upon the 2nd Respondent to hand over the possession of the vested land was given on 15.9.1995. On 2.11.1995, the possession of the vested land was taken over according to the appellants though the 2nd Respondent denies the same. Reverting back to the Writ Petition filed in February, 1997, it appears that the learned Single Judge while directing the Writ Petition to be posted for orders after two weeks, declined to grant interim relief on the ground that no urgency was made out. Aggrieved by this order dated 24.2.1997, the Company preferred Letters Patent Appeal which is GA No. 811 of 1997. It appears that the writ petition was assigned for disposal to the Bench hearing the Company Appeal.5. On 15.4.1997, the Division Bench passed an order in A.P.O. No. 21 of 1994 as well as GA No. 811 of 1997 directing the State Government to pass a fresh order under Section 20 on a fresh application filed by the 2nd Respondent Company. The State Government was required to take decision within four weeks from the date of receipt of application. The High Court indicated that the fresh decision should be taken according to law, keeping in view the judgment of the Supreme Court in T.R. Thandur vs. Union of India (JT 1996(4) SC 14 ) and in the light of the Project Report submitted before the Court pursuant to the offer of CMS Ltd. and also the existing State policy. The High Court observed that "it is expected that the Government shall consider and give due weight to the project which Mr. Mukherjees client wants to implement in the light of the policy decision already taken by the State Government and the decision of the Supreme Court mentioned above." The State Government, on consideration of the representation, passed a speaking order rejecting the application under Section 20 on 30.7.1997. The Government referred to the decision of the Supreme Court and proceeded to consider the question from the angle of undue hardship and public interest. In doing so, the State Government placed strong reliance on certain guidelines issued by the State Government in regard to the surplus land held by sick industrial units. The Government was also of the view that, on account of vesting order, the grant of exemption would not be in accordance with law. This order passed under the ULC Act had created a stalemate in regard to implementation of the proposals submitted by CMS Ltd. which received the approval of Division Bench. The Division Bench heard arguments on the legality of the order passed by the State Government refusing the exemption and rendered the impugned judgment in the two matters before it. That is how the SLPs came to be filed by the State, leading to these appeals. The Court, passed an interim order on 14.2.2000 directing the Official Liquidator, Calcutta High Court to make an inventory of all the assets and to ensure and safeguard the said assets lying at 21, Sil Lane and 24 Christopher Road, Calcutta and to submit a report.6. The findings arrived at and the directions issued by the High Court in the judgment under appeal are to be noted. The High Court was of the view that the sale of vacant land, not required for the purpose of the Company in favour of CMS Ltd., would not only serve the Companys interest but also public interest. The High Court observed that the creditors dues as well as the workmens dues could be cleared and the Company will be able to restart the industry thereby providing employment to a large number of workers, while at the same time, CMS Ltd. would be setting up a software development park which is unique in its character. Referring to the decision of this Court in Thandurs case (1996) JT (4) Page 14), the High Court observed that the exemption under U.L.C. Act could be lawfully granted even for the purpose of transferring the land to revive the industry. The High Court did not agree with the stand taken by the State Government that the power of exemption cannot be exercised after vesting of the land. The High Court pointed out that in any case the possession of the land was not taken and, therefore, the Company was still holding the land. The High Court then questioned the competence of the ULC authority to declare the property as vested in the State and to take possession, without obtaining leave of the Court when proceedings under the Companies Act were pending. The High Court made a comment that the law laid down by the Supreme Court in Thandurs case (supra) was simply ignored by the Government in refusing the exemption. The further comment was that the proposal given by CMS Ltd. was not kept in view and the Government chose to follow some unknown existing guidelines". The High Court then held asAccordingly, in our view, it was a fit and a proper case where exemption ought to have been granted and the exemption was rejected on an existing Government policy without disclosing what is the policy and on the contrary the policy of the Government is to further the interest of the public and to industrialise the State to mitigate the hardship of the unemployed people. The reasons given herein cannot stand and accordingly, this Court has no other option but to hold that the property stood exempted as it fulfills all the conditions laid down in Section 20 and it also fulfils the decision of the Supreme Court in the case of T.R. Thandur (supra) and it also ensures the social and economicHigh Court ultimately held that the twin considerations of undue hardship and public interest are satisfied in the instant case.7. Coming to the operative part of the order, the High Court reiterated the confirmation of sale by its order dated 16.1.1996 in favour of CMS Ltd. for a consideration of Rs. 3.90 crores. The Company was permitted to sell 300 cottah of land delineated in the annexed Plan for the sale price of Rs. 3.90 crores. Out of the said amount, the Company (appellant before the High Court) was directed to pay Rs. 1.80 crores to the United Bank of India as per the settlement terms, 60 lakhs to the workmen and the actual amount payable to Eastern Coal Agency. The Company was also required to pay the statutory dues and taxes. The balance amount was directed to be utilized for rehabilitation of the Company. The time schedule for payment of the amount by CMS Ltd. was set out for the purpose of implementation of the order and two advocates were appointed as Special Officers, whose fee was liable to be paid by the Company. The concerned authorities were directed to register the Deed of Transfer without insisting on no objection certificate under Section 269 U.D. (i) of I.T. Act or no objection certificate from the U.L.C. authorities. The Municipal officials were directed not to insist on no objection certificate from the Urban Land Ceiling authorities. It was also declared that on payment of Rs. 3.90 crores, as per the time schedule, the ownership and interest of the Company in the property shall absolutely vest in CMS Ltd. free from all encumbrances and lien and the nominated Special Officer should handover the possession to CMS Ltd. The concluding part of the order is alsothis order all proceedings including the writ application, writ appeals filed against the Urban Land Ceiling Authorities as well as Liquidation Proceedings and the appeal filed in connection therewith stands finally disposed of."

Court's reasoning:
order of the High Court in regard to grant of exemption under Section 20 of the U.L.C. Act being in a way inter-related to the approval of the sale of vacant land, should also fall along with the order passed in purported exercise of jurisdiction under The Companies Act. That apart, there is an additional reason why we are inclined to set aside the order of the High Court on this aspect. The High Court did not consider the relevance and effect of the guidelines issued by the State Government in regard to the exercise of power under Section 20 vis-a-vis excess land held by sick industrial units. The High Court was not justified in describing them as unknown guidelines because the orders containing the guidelines were very much on the record and they were adverted to in the pleadings etc. We are not expressing any view on the question whether the application under Section 20 of ULC Act should be dealt with solely from the point of view of the guidelines. We are also refraining from expressing any view on the question of validity of those guidelines in the light of Section 20. These are all questions to be decided by the High Court to the extent they are considered necessary and relevant for adjudication of the writ petition. Whether or not it is a fit case for grant of exemption at least in respect of part of the land so as to facilitate the discharge of workers salaries and statutory dues is also a matter which the High Court may consider, if necessary. It is, however, made clear that the pendency of proceedings under the Companies Act shall not be construed to be a bar to give effect to the provisions of ULC Act in view of the over-riding effect conferred by Section 42 of the Act.17. Accordingly, we set aside the impugned order of the High Court in regard to its finding and declaration on the point of exemption under Section 20 of ULC Act. Writ Petition 383 of 1997 shall be restored to the file of the High Court and the same be dealt with by a Division Bench