2008 (1) TMI 625 - HC - Companies Law

Winding up - Suits stayed on winding up order - whether APIIC as vendor of immovable property is in law entitled to determine the contract of sale and resume possession of the land? Held that - The company failed to utilize the land even after eight years of allotment from date of allotment to the date of winding up order and therefore APIIC is justified in invoking the clauses 18 and 19. The moment allottee fails to comply with the condition of raising construction on the land within the stipulated period, agreement stands cancelled and land, absolutely vests in APIIC Estate Officer & Managers (Recoveries), APIIC Ltd. s. What remains is taking possession of land by following provisions of Public Premises Eviction Act. Having regard to those clauses, APIIC is under no obligation to pay compensation/damages for the loss, if any, sustained by APCL and they can even forfeit the amount paid. It is for APIIC to consider question of forfeiting/refunding the sale consideration paid at the time of execution of agreement having regard to the fact that even before it could go into production, the company became sick company and was referred to BIFR, which ultimately resulted in winding up of the company. In the result, this application is allowed granting permission to APIIC, applicant herein, to cancel allotment of the land admeasuring Acs. 1.22 in survey No. 82/2 situated at Hafeezpet village of Serilingampalli Mandal in Ranga Reddy District. While doing so, APIIC shall consider question of forfeiting/refunding the sale consideration paid by M/s. Ambuja Petro Chemicals Limited (in liquidation). There shall be no order as to costs.

Issues Involved:
1. Whether APIIC is entitled to cancel the allotment and resume possession of the land.
2. Validity and enforceability of clauses 14(a), 14(b), 18, and 19 of the agreement.
3. Impact of material alterations in the agreement.
4. Applicability of the doctrine of proportionality and public policy considerations.

Detailed Analysis:

1. Entitlement to Cancel Allotment and Resume Possession:
The core issue was whether APIIC, as the vendor of immovable property, could legally determine the contract of sale and resume possession of the land. The court held that APIIC is justified in invoking clauses 18 and 19 of the agreement due to the failure of the allottee (APCL) to utilize the land within the stipulated period. The agreement explicitly provided that non-utilization of the land would result in automatic cancellation of the allotment and the allottee being treated as a trespasser, allowing APIIC to resume possession.

2. Validity and Enforceability of Clauses 14(a), 14(b), 18, and 19:
The court analyzed the relevant clauses of the agreement:
- Clause 14(a): Required the land to be utilized for the specified industrial purpose.
- Clause 14(b): Obligated the allottee to commence construction within three months and complete it within eighteen months.
- Clause 18: Allowed APIIC to resume unutilized land if it remained unutilized for six months.
- Clause 19: Provided for automatic cancellation of the allotment and resumption of land upon breach of any covenants.

The court held that these clauses are binding and enforceable even if the entire sale consideration was paid. The conditions were not found to be opposed to public policy or Section 11 of the Transfer of Property Act, 1882. The court relied on the Supreme Court's decision in Indu Kakkar v. Haryana State Industrial Development Corpn. Ltd., which upheld similar conditions as valid and enforceable.

3. Impact of Material Alterations in the Agreement:
The Official Liquidator (OL) argued that there were material alterations in clause 14(b) of the agreement, making it unenforceable. The court rejected this argument, noting that the company never objected to the clause during the correspondence with APIIC and that the alterations did not affect the enforceability of clauses 18 and 19. The court applied the principle from Polymat India (P.) Ltd. v. National Insurance Co. Ltd., which stated that a contract cannot be altered without mutual consent, and found that the alterations did not constitute a material change.

4. Applicability of the Doctrine of Proportionality and Public Policy Considerations:
The court considered whether the extreme action of cancellation and resumption was justified. It referred to the Supreme Court's decision in Teri Oat Estates (P.) Ltd. v. U.T., Chandigarh, which emphasized that such drastic measures should be a last resort. However, the court distinguished this case from the present one, noting that the allottee (APCL) had failed to utilize the land for over eight years. The court concluded that APIIC's action was justified and not disproportionate.

Conclusion:
The court allowed APIIC's application to cancel the allotment and resume possession of the land. APIIC was directed to consider the question of forfeiting or refunding the sale consideration paid by APCL, taking into account the company's financial difficulties and eventual winding up. The application was granted without any order as to costs.

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