2008 (2) TMI 630 - HC - Companies Law

Winding up Suits stayed on winding up orders - steps to resume possession of land - Held that - On the principle of promissory estoppel, the Government cannot be permitted to resume the land while the Andhra Pradesh Refractories Ltd., is in liquidation. If such permission is granted, all the banks/financial institutions would not be able to recover their amounts either fully or in part. The Government in essence claims equity while purporting to enforce the resumption clause, and therefore, they are bound to do equity to the mortgages. Ignoring the interests of the mortgages/chargeholders, in whose favour the land is mortgaged, the Government cannot be permitted to resume the land. In the result for the above reasons, these applications must fail. The company applications are accordingly dismissed

Issues Involved:
1. Validity of resumption of land by the Government and APIIC.
2. Role and rights of Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC).
3. Validity of the agreement between APRL and APIIC.
4. Rights of financial institutions holding a charge over the land.
5. Applicability of the doctrine of promissory estoppel against the Government.
6. Applicability of limitation period to the applications under Section 446(1) of the Companies Act.

Detailed Analysis:

1. Validity of Resumption of Land by the Government and APIIC:
The Government and APIIC sought to resume land allotted to Andhra Pradesh Refractories Ltd. (APRL) on the grounds of non-utilization. The Government issued G.O. Ms. No. 24 declaring the alienation of 158.43 acres of land as null and void, and ordered the resumption of the land. However, the court observed that the Government did not provide notice to APRL or consider the interests of financial institutions holding charges over the land. The court held that the drastic step of resumption was not warranted as APRL had utilized part of the land and had plans for phased development.

2. Role and Rights of APIIC:
APIIC claimed the right to resume land based on an agreement with APRL. However, the court found that APIIC was merely a facilitator in the land acquisition process and did not have proprietary rights over the land. The agreement between APIIC and APRL was unsigned by APIIC, rendering it unenforceable. The court concluded that APIIC had no role in the cancellation of allotment or resumption of land.

3. Validity of the Agreement between APRL and APIIC:
The agreement dated December 17, 1980, between APIIC and APRL, contained a resumption clause for non-compliance but was unsigned by APIIC. The court held that the agreement was not validly executed as per Section 46 of the Companies Act, which requires contracts on behalf of a company to be signed by an authorized person. Therefore, the agreement could not be enforced.

4. Rights of Financial Institutions Holding a Charge over the Land:
Financial institutions had extended loans to APRL by accepting the land as security, and a charge was created under Section 125 of the Companies Act. The court emphasized that the rights of these secured creditors could not be ignored. The Government's attempt to resume the land without addressing the interests of the mortgagees was deemed inequitable. The court held that the Government could not cancel the allotment and resume the land, thereby jeopardizing the interests of financial institutions.

5. Applicability of the Doctrine of Promissory Estoppel Against the Government:
The court applied the doctrine of promissory estoppel, stating that the Government, having permitted the creation of a mortgage over the land, could not now act to defeat the rights of the financial institutions. The Government was estopped from resuming the land as it had induced the financial institutions to alter their position based on the promise that the land was unencumbered.

6. Applicability of Limitation Period to the Applications under Section 446(1) of the Companies Act:
The court clarified that the period of limitation does not apply to applications seeking leave to file a suit or commence legal proceedings against a company in liquidation. The relevant consideration is whether the suit or proceeding itself is within the limitation period. The court found that the applications were not barred by limitation as the Government had thirty years to file a suit from the date of the show-cause notice issued in 1986.

Conclusion:
The court dismissed the applications filed by the Government and APIIC seeking permission to resume the land allotted to APRL. The judgment emphasized the importance of adhering to procedural requirements, protecting the rights of secured creditors, and applying equitable principles such as promissory estoppel. The court held that the Government and APIIC could not resume the land without addressing the interests of financial institutions and without validly executed agreements.

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