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TMI Blog1998 (12) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... idator was directed to take charge of the company together with all its assets, records, books, machineries, spare parts stores, manufactured goods, land and buildings and all other properties after taking an inventory in that behalf. The order stated that he will have all the powers prescribed under sections 456 and 457 of the Companies Act, 1956, and would also be at liberty to seek permission from this Court whenever he felt it necessary. 2. Shri Ambica Mills Ltd. is having its properties situated mainly at four different places : ( i )Unit No. 1 situated in the Khokra area of Ahmedabad. ( ii )Unit No. 2 which is situated near Railway Lines at Ahmedabad. ( iii )A textile mill at Baroda. ( iv )Ambica Tubes Division at Vatva. 3. In the present matter, we are concerned with the textile mill at Baroda known as Unit No. 3. In pursuance of the above referred judgment and order, the official liquidator has taken possession of all the aforesaid properties except the textile mill at Baroda. This is because subsequent to the aforesaid judgment and order, initially an appeal was preferred by the present applicant being O.J. Appeal No. 7 of 1997. That came to be dismissed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r agrees and undertakes to indemnify the purchaser and keep it indemnified from and against all claims and demands made by ONGC prior to the date of handing over possession of the said undertaking and from and against all costs, charges and expenses which the purchaser may have to incur or suffer or be put to on account of such claim made by ONGC against the purchaser for the period prior to the date of the handing over of the possession of the said undertaking." Thereafter, it is stated in para 10 of the affidavit : "I state and submit that, with a view to deceive the applicant, Shri Ambica Mills Ltd. knowing fully well that it had given the aforesaid undertaking to this Hon ble Court had not disclosed the said material fact to the applicant company and without obtaining leave from this Hon ble Court agreed to transfer unit No. 3 to the applicant company under the said agreement, dated 2-9-1989." (read Supreme Court in place of this Hon ble Court ) 6. It is further stated in the application that the applicant was put in possession since the month of December 1989 and since then the appli-cant is running the said unit. Then it is stated that necessary permissions under var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement to Shri Ambica Mills Ltd. The appellant has not given any scheme before the Board. There is also nothing to show that the appellant is ready to rehabilitate the company in the appeal memorandum. It is stated that a detailed scheme would be submitted by them before the Board but was not done. The scheme the appellants referred to is based on the sale of land of Unit No. 3. As the appellant is only clothed with the agreement for sale, the appellant s proposal, in fact, amounts to succession to a part of assets of Shri Ambica Mills Ltd. at a throwaway price without regard to the financial liabilities of Shri Ambica Mills Ltd." 10. It is also relevant to note that in para 21 of this application, it is averred as follows : "I state that at this stage, I beg to point out that the ONGC having come to know about the breach of the undertaking given to the Hon ble Supreme Court by the Ambica Mills Ltd., had also filed a contempt petition against Shri Ambica Mills Ltd." On a query it is also stated that this contempt application came to be filed on 23-4-1997. 11. The present application came up before Balia, J. The order passed by the Hon ble Supreme Court in the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That was subject to an undertaking to be given by the companies concerned that they will not charge, encumber or alienate except with the leave of the Supreme Court any of the immovable assets and they will make their immovable assets available for discharging their respective liabilities on account of the difference in the price of all the gas supplied which will be governed by the orders to be made by the court while disposing of the appeals. The order passed by the Supreme Court on 15-4-1987, reads as follows : "These appeals will be listed peremptorily on 21-7-1987, as the very first case for regular hearing and above all other causes. We direct that during the pendency of the appeals, the Oil and Natural Gas Commission will not disconnect the supply of gas to the respondents, namely, the Association of Natural Gas Consuming Industries of Gujarat, M.S. Jayant Paper Mills Ltd., Alembic Glass Industries Ltd., Alembic Chemical Works Co. Services Ltd., New India Industries Ltd., Punjab Steel Rolling Mills (P.) Ltd., Chandan Metal Products Ltd., and Shri Ambica Mills Ltd., Mill No. 2, and will continue to supply gas as hitherto charging at the rate of Rs. 1,000 for one thousand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the price which may be determined by this Hon ble Court while disposing of the present appeals finally. Solemnly affirmed on 27th day of May 1987 at Ahmedabad. Dated : 27 May, 1987Signed P.S. Brahmbhatt, Secretary". 14. It is relevant to note that, subsequently, those appeals filed by ONGC came to be allowed and the prices charged by ONGC for supply of gas to various respondents were upheld. The said judgment, dated 4-5-1990 ONGC v. Association of Natural Gas Consuming Industries of Gujarat [1990] (Supp.) SCC 397 and the interim order passed by the Hon ble Supreme Court on 15-4-1987 is recorded in para 11 of the judgment appearing in the aforesaid report of the Supreme Court Cases. 15. Inasmuch as an application was to be moved to the Hon ble Supreme Court (as directed by Balia, J.) and orders were to be sought, interim protection of the properties was necessary. The properties were in the custody of the applicant, Sunil Mills Ltd., in the meanwhile. Therefore, in para 10 of that order, the learned Judge further directed as follows : " 10. The liquidator will place the orders of the Supreme Court as soon as they are obtained. Meanwhile, the status quo as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the sale proceeds in accordance with law." The principal prayer in that application, namely, 12(A) was as follows : "In the premises aforesaid, the applicant most humbly and respectfully prays that : (A) This Hon ble Court would be pleased to permit the official liquidator to sell the immovable properties of the said company as may be directed by the Gujarat High Court and to disburse the sale proceeds in accordance with law." 18. Thereafter, the matter was considered by the Hon ble Supreme Court on 17-10-1997 where the court passed the following order : "Upon hearing counsel, the Court made the following : Order. All that is necessary to be said is that out of the assets of the company under liquidation, the dues of ONGC Ltd. are required to be paid off first and the question of making any payment to any other creditor can arise only out of the surplus if any remaining after the full dues of the ONGC have been paid off. The High Court is, therefore, to proceed with the matter in this manner. IAs stand disposed of." 19. In the circumstances, it was submitted on behalf of the applicant that the applicant company was deceived as stated in para 10 of their appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98. 21. It would be convenient to complete the recording of applicant s submissions first. Hence, if the rejoinder filed by the applicant is referred first, it is seen that it, principally, contends that the reply of the official liquidator was belatedly filed and that many of the necessary documents have not been annexed. It is further submitted that provisions of section 441(2) of the Companies Act would not be relevant as far as this proceeding is concerned inasmuch as the winding up order is passed in pursuance to the order of BIFR under section 20 of the SIC Act. Thereafter, it is contended that the company having derived the benefits under the agreement, it is estopped from challenging the validity thereof. In para 6 of its rejoinder, it is stated as follows : "Failure to mention the factum of the interim injunction granted by the Hon ble Supreme Court of India in the explanatory statement would not render the resolution passed at the extraordinary general meeting held on 30-3-1989 invalid. Such a plea in any case is not open to the official liquidator." It is further stated therein that by the order, dated 17-10-1997, the Hon ble Supreme Court has granted a general p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentions the secured loans in the annual report of 1989-90. To this agreement, a Schedule is annexed which is marked as Schedule-A which gives the names of the debenture holders. They are split into three parts. The first part pertains to Army Goup Insurance Fund. The second part includes various Financial Institutions and the third part is of GENERAL PUBLIC. The ICICI was the lead manager for these debentures as stated in para 8 of the application and by their letter, dated 31-8-1989, ICICI agreed in principle vide para ( ii ) thereof that redemption date of the debentures (other than those held by the public) may be extended upto 31-3-1995. The debentures held by the public together with interest would, however, be redeemed on due date. It is stated in the affidavit-in-reply that these payments were not made either in August, 1993 to the general public or in March, 1995 to the financial institutions. It is further stated in para 13 of the reply that the so-called permission under the Urban Land (Ceiling Regulations) Act, 1976, is not produced. In para 14 of the reply it is stated that the statement in the application regarding various expenses incurred by the applicant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 14 of the agreement. Para 14 of the agreement refers to the dispute between ONGC and Shri Ambica Mills Ltd. and that a writ petition was pending in the Gujarat High Court in respect thereof. This para also contains an indemnity by the vendor that, in the event any claims are raised by ONGC on the purchaser, the vendor agrees and undertakes to indemnify the purchaser. It was, therefore, submitted by Mr. Nanavati and Mr. Chudgar that the applicant company was a bona fide purchaser and should not be made to suffer inasmuch as it was deceived by Shri Ambica Mills Ltd. as stated in para 10 of their application. The second submission is that assuming that there was any such injunction or undertaking, if one closely scrutinizes the order passed by the Hon ble Supreme Court, what was directed was that the company will not charge, encumber or alienate except with the leave of the Supreme Court any of their immovable assets. It was submitted that the company had entered into an agreement for sale and no outright sale was effected by effecting conveyance deed which could be done with the leave of the court. It was further submitted that this cannot be considered as encumbering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989 Ori. 148, Dalbara Singh v. Chhaja Singh AIR 1992 Punj. Har. 237; Adapa Vittal v. Govula Ramakistaiah AIR 1969 AP 167; Kusuma Dei v. Malati AIR 1969 Ori. 195 in that behalf. The fourth submission of Mr. Chudgar was that the agreement cannot by any stretch of imagination be said to be opposed to public policy or prohibited by any law. He also relied upon the judgment of the Supreme Court in Gherulal Parakh v. Mahadeodas Maiya AIR 1959 SC 781 and Kedar Nath Motani v. Prahlad Rai AIR 1960 SC 213 in this behalf. 25 . As against the aforesaid submissions of Mr. Chudgar, Mr. Shah submitted that the applicant s first submission that the applicant company was a bona fide and innocent purchaser itself is very doubtful. The agreement clearly informed the applicant that a dispute with respect to the price to be paid to ONGC was pending in the High Court. Even if one takes the agreement on the face of it, the applicant company had agreed to pay an amount of Rs. 4,01,00,000. It is true that only Rs. 5 lakhs were to be paid as down payment but the applicant was taking over the responsibility to pay Rs. 3.95 cores towards the debenture holders and had agreed to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of only Rs. 5 lakhs. On the other hand, the other possibility is that the applicant was in collusion with the former directors of the company in liquidation, without which it would not get this huge and expensive property at the down payment of Rs. 5 lakhs (and for an agreed price of Rs. 4.1 crores) which is rightly described as a throwaway price by the AAIFR. If the apparent consideration of the agreement is so negligible, the intentions of the applicant can certainly not be called as innocent and bona fide. The applicants are pretending too much. That is the least that can be said with respect to their first submission. 26. With respect to the submission of Mr. Chudgar that the agreement was a valid one at its inception and had subsequently become voidable at the most and not void, Mr. Shah submitted that the same was not tenable also for two main reasons; firstly, as stated above, the agreement was entered in flagrant violation of the order of injunction granted by the Supreme Court and the solemn undertaking given to the Apex Court. It is very material to note that the very same Mr. Prahaladbhai S. Brahmbhatt who has given the undertaking to the Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal rate and the establishment will be run by the very management. On the other hand, if we look to the entire agreement, it is clear that from the date on which the possession was handed over to the applicant herein, all the liabilities were passed on. At the end of Clause 13 of the agreement it is specifically provided : "After the date of possession, the purchaser shall be bound and liable to clear, pay and discharge all outgoing liabilities in respect of the said undertaking." If one looks to the various clauses of this agreement, it is clear as if the date of putting the applicant into possession was like a cut-off date, and from that date, all the liabilities go over to the purchasing party. It is stated in the application that possession was handed over in December, 1989. Thus, it is apparent that though the document is styled as an agreement to sell, it is almost in the nature of a conveyance. It is, therefore, easy to say that the agreement has not caused any alienation. But, that is only on paper and not in reality and, in any case, it definitely creates an encumbrance or burden on the property. Moreover, the second part of the restrictions imposed by the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court on interim application No. 168-178 is also clear enough and it states that the ONGC is required to be paid off first out of the assets of the company under liquidation. The High Court is, therefore, to proceed with the matter in this manner. Thus, the Supreme Court had granted an injunction much prior to the disputed agreement. The Supreme Court dismissed the applicant s application seeking alienation of the property moved subsequent to the agreement and, thirdly, even subsequent to the winding-up order, the Hon ble Supreme Court has not changed that position and has maintained that the dues of the ONGC are to be paid first. In the circumstances, the consideration of the agreement being unlawful and being forbidden by law and court s orders, the agreement would be void at its inception under section 23 read with section 24 of the Indian Contract Act. The plea of the applicant that the agreement was initially void and had at the most become voidable subsequently, has to be rejected. 29. The agreement will also have to be considered as opposed to public policy inasmuch as no such agreement can be permitted which is contrary to and violative of the injunction and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mance of the agreement. It was sought to be contended by Mr. Nanavati that the occasion to redeem the debentures has not come and the applicant was still ready to make that payment to the debenture-holders. Now, as has been recorded in the agreement itself, the debentures were to be redeemed in August, 1993, and that having not been admittedly done, there is, in fact, a breach and failure on the part of the applicant to act in accordance with the agreement. What is interesting to note is that, in para 9 of their preliminary affidavit-in-rejoinder, the applicants have clearly stated that the conveyance could not be completed because of default on the part of the company and therefore, the applicants cannot be called upon to make the payment in terms of the agreement or get the company released and discharged of its obligations to the debenture-holders or debenture-trustees. Now, one does not know what was the default on the part of the company. The company had put the applicant in possession of the property in its entirety. It was clearly disclosed to the applicant that proceedings were pending in the High Court concerning the claims of ONGC and it was expected of the applicants to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, if permitted, it would defeat any specific statutory provision. Section 293(1)( a ) requires a company not to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company except with the consent of the public company in its general meeting. That consent is to be obtained after informing the shareholders accordingly in the meeting to be held for that purpose. Any such business would be a special business under section 173(1)( b ) of the Companies Act and where such a business is to be transacted, it is mandatory that a statement setting out the material facts concerning each such item of business (including any opportunity [ sic in particular ?], the nature of the concern or interest, if any therein, of any director and the manager, if any) is to be annexed to the notice of the meeting. That is the requirement of section 173(2). As seen above, although a meeting was called, the shareholders were completely kept in dark of the order passed by the Supreme Court restraining any such disposition of property and requiring that the property should be kept intact and available for clearing the dues of ONGC. 33. As far as the require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances : ( a ) directors retiring by rotation or ( b ) being reappointed. In that case, no explanatory statement is required. The object of enacting section 173 is to secure that all facts which have a bearing on the question on which the shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise an intelligent judgment. The provision is enacted in the interests of the shareholders so that the material facts concerning the item of business to be transacted at the meeting are before the shareholders and they also know what is the concern or interest of the management in any item of business, the idea being that the shareholders may not be duped by the management and may not be persuaded to act in the manner desired by the management unless they have formed their own judgment on the question after being placed in full possession of all the material facts and apprised of the interest of the management in any particular action being taken". (p. 349) It is relevant to note that the learned Judge has followed the law laid down by the single Judge of this court in the earlier mentioned judgment and concurred with it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idable, can be of no avail. In the two cases concerning section 43(1) of the Bombay Tenancy and Agricultural Lands Act, the learned single Judges were concerned with the interpretation of the particular section. In the present case, we are not concerned with the interpretation of any statute but with the order passed by the Supreme Court and this is also in the back ground that when the Supreme Court has in three different occasions passed clear and consis-tent orders. Initially, an injunction was granted on 15-4-1987. Thereafter, Interim application No. 135-45 seeking/permitting transfer of assets to the present applicant was rejected by the Hon ble Supreme Court on 5-2-1996 and thereafter once again, subsequent to the order passed by Balia, J., of this Court, the Supreme Court has clarified that the proceeds from the sale of assets have to be, first, used to clear the dues of ONGC. In the two cases under the Bombay Tenancy and Agricultural Lands Act, the question was as to whether sale can be entered into before obtaining sanction of the Collector and whether possession of the person on the basis of an agreement without prior sanction is illegal. These questions arose concerning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of that case, sale of property during injunction period was held not to be nullity. What is relevant to note is that all these authorities are concerning concluded sales. In the present case, admittedly, conveyance is not effected. In the facts of the present case, that course of action is not available also for the reason that the application of the applicant seeking/permitting alienation of the property was rejected by the Hon ble Supreme Court when it rejected Interim Application No. 135-45. The facts of the Andhra Pradesh judgment in the case of Adapa Vittal ( supra ) are quite different. In that case, on facts, the court held that there was no breach of injunction and, hence, that authority has otherwise also no application to the facts of the present case. 37. The next submission canvassed is that the order passed by the single Judge of this court earlier (Balia, J.) and the order passed by the Hon ble Supreme Court on the official liquidator s application have impliedly permitted the execution of the conveyance. This submission cannot be accepted for a moment for the reason that the Supreme Court had turned down the very request earlier when it dismissed interim appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its assets, records, books, machinery, spare parts, stores, manufactured goods, land and buildings etc. In view of the subsequent order passed by Balia, J., on 6-8-1987, there has been status quo and the order passed on 17-1-1997 has not been enforced qua unit No. 3. In view of the present application being dismissed, the order of status quo will stand vacated and the official liquidator will be at liberty to act in accordance with the order, dated 17-1-1997, passed by Pandit, J. He is expected to move at the earliest in accordance with law so as to safeguard the properties of the company and along therewith he will take steps to make inventory and to provide appropriate security. This application is accordingly dismissed. 41. Mr. Mehta applies for stay of this order. The directors of the applicant (other than one Jayesh R. Shah) have not filed the undertaking to protect the property though directed by Balia, J., on 6-8-1997. It is, therefore, not possible to entertain this request. Mr. Shah for the official liquidator however states that the official liquidator will move to take possession of the property only after a copy of this order is available. He further states th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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