2008 (3) TMI 483 - HC - Companies Law

Winding up - Powers of liquidator - Held that - Since the State Government has discharged the liability of the Mills Company towards secured creditors and labourers and there is still surplus fund with the Official Liquidator in the account of GSTC and since the State Government has undertaken to discharge the liabilities if any that may arise in future there may not be any objection on the part of the Official Liquidator in handing over possession of the immovable properties in question to the State Government and even if the objections raised by the Official Liquidator in his report they are not sustainable either on facts or in law. The Official Liquidator is directed to hand over possession of the properties in question of Priyalaxmi Mill Vadodara as well as Monogram Mill Ahmedabad to the State Government as the State Gov-ernment is the only secured creditor and sole shareholder/contributory of the Company in liquidation. The Court is further taking note of the fact that purpose for which the possession of the land is claimed by the State Government is also public purpose as on the land of Priyalaxmi Mill Vadodara the State Government has decided to develop the Information Technology Park whereas on the land of Monogram Mill Ahmedabad the State Government has decided to establish a health centre. So far as surplus fund available with the Official Liquidator in GSTC Account is concerned the Official Liquidator was earlier directed by this Court to return the amount of the funds available with him till this date. As per the say of the State Government the Official Liquidator is having funds of more than 60 crores as on today in GSTC account. A part of the said funds may be retained by him for discharging the liabilities or to meet with any exigency that may arise in future. The balance amount shall have to be handed over to the State Government and the appropriate order in this regard will be passed after submission of accounts before the Court under separate report.

Summary

Issues Involved:
1. Transfer of immovable assets and properties of Gujarat State Textile Corporation (GSTC) in liquidation to the State Government.
2. Discharge of liabilities and dues of GSTC.
3. Rights and priorities of creditors and contributories under the Companies Act, 1956.
4. Public interest and utilization of the land for public purposes.

Issue-wise Detailed Analysis:

1. Transfer of Immovable Assets and Properties of GSTC to the State Government:
The State of Gujarat filed Company Applications No. 562 of 2007 and No. 77 of 2008 seeking directions to transfer and hand over all immovable assets and properties of GSTC's units, Priyalaxmi Mills, Vadodara, and Monogram Mills, Ahmedabad, to the State Government free from all encumbrances under section 457(1)(e) of the Companies Act, 1956. The State Government argued that it had discharged almost all liabilities of GSTC and was the sole shareholder, thus entitled to the assets. The Official Liquidator opposed the application, stating that assets cannot be transferred without following the due process of law, including public auction.

2. Discharge of Liabilities and Dues of GSTC:
The State Government provided detailed accounts of liabilities and dues settled, including payments to secured creditors, workers, and other institutional creditors. The Chartered Accountant's reports confirmed the discharge of significant liabilities, with remaining dues primarily involving State Government entities. The State Government undertook to settle any outstanding liabilities directly. The Official Liquidator's report highlighted the need for proper claims adjudication and prioritization under sections 528 to 530 of the Companies Act, 1956.

3. Rights and Priorities of Creditors and Contributories under the Companies Act, 1956:
The court considered the statutory provisions under sections 457 and 475 of the Companies Act, 1956, which empower the Liquidator to distribute assets and adjust rights among contributories. The court noted that the State Government, having settled major liabilities and being the sole shareholder, was entitled to request the transfer of surplus assets. The Official Liquidator's objections on procedural grounds were deemed unsustainable, given the factual discharge of liabilities by the State Government.

4. Public Interest and Utilization of the Land for Public Purposes:
The State Government proposed to utilize the land of Priyalaxmi Mills for an Information Technology Park and the land of Monogram Mills for a health institute, both serving public purposes. The court acknowledged the public interest in these projects and directed the Official Liquidator to hand over the properties to the State Government. The court also noted that similar applications had been granted in the past for other GSTC units, reinforcing the precedent for such transfers.

Conclusion:
The court directed the Official Liquidator to transfer the immovable properties of Priyalaxmi Mills and Monogram Mills to the State Government, recognizing the State Government's role as the major creditor and sole shareholder. The court emphasized the public interest in the proposed utilization of the land and noted the surplus funds available with the Official Liquidator to meet any future liabilities. The applications were disposed of with directions for the transfer of assets and submission of accounts by the Official Liquidator.