9911796707
TMI Blog2003 (3) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. Harihar Polyfibers, the appellant-company which is a unit of Grasim Industries Limited, Headquarter of which is situated in New Delhi, is engaged in the manufacturing of Rayon Grade Pulp and Pulp products at its factory situated in Kumarapatnam, Dharwar District, Karnataka State. Pulpwood is the main raw material for the manufacture of Rayon Pulp and other Pulp products. In or around the year 1969, Government of Karnataka, the fifth respondent herein, promised to supply pulpwood and other forest produce, if Grasim Industries Limited (erstwhile Gwalior Rayon Limited) was to set up a unit for manufacture of Rayon Grade Pulp in the State. In view of the above promise held out by the Government of Karnataka, Gwalior Rayon Limited agreed to set up the appellant unit for manufacture of Rayon Grade Pulp and Pulpwood Products. In that regard, an agreement dated 15-2-1971 was also entered into between the Government of Karnataka and the appellant whereunder the Government of Karnataka agreed to supply 1,50,000 tonnes of pulpwood to the appellant every year till the year 2001. Under subsequent agreements, Government of Karnataka agreed to supply 1,90,000 tonnes of pulpwood to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka leased 9,590 hectares of land to respondent No. 4. When the matter stood thus, a public interest litigation in Writ Petition No. 35 of 1987 was filed in the Supreme Court under Article 32 of the Constitution against the action of the Government of Karnataka in leasing 9,590 hectares to respondent No. 4-Company on behalf of the affected villagers, alleging that the impugned action of the Government would violate the community rights of the villagers. The appellant was also impleaded as one of the respondents to the said writ petition. When that writ petition was pending in the Apex Court, the Forest Conservation Act, 1980 was amended with effect from 15-3-1989. The amendment provides that without the prior approval of the Government of India, no forest land can be assigned to private persons or any authority, Corporation of Agency not owned/managed or controlled by the Government. Since respondent No. 4 was not wholly owned/managed or controlled by the Government directly the Government of Karnataka took a policy decision and issued GO No. AHFF 24 FPC 90 dated 24-10-1991 (hereinafter referred as the impugned order) directing that respondent No. 4 should be wound up, that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration subject to reimbursement within a reasonable period. ( b )Obtain temporary loan of Rs. 50.00 lakhs from Govt. of Karnataka to meet the obligation for payment to M/s. H.P.F. ( c )Get a suitable Memorandum of Understanding drafted if legally found necessary and sign the same for and on behalf of the Board of Directors of K.F.D.C. Ltd., under the common seal of the Corporation affixed in the presence of any two Directors to nullify all obligations of promoters agreement executed between K.F.D.C. Ltd., and M/s. H.P.F. on 14-11-1984. ( d )Get the Govt. Order dated 24-10-1991 suitably amended. ( e )Communicate the relevant decision to the K.P.L. for being placed before the Board of Directors of K.P.L. There being no other business, the Meeting ended with vote of thanks to the Chair at 13.30 Hours. Sd/- Chairman and Managing Director No. KFDC/BM-122/91-92Dated : 27-11-1991." 4. When the matter stood thus, in the meanwhile, in February 1992, respondent Nos. 1 and 2 filed Writ Petition No. 25799 of 1991 in this Court assailing the validity of the impugned order passed by the Government on 24-10-1991. In the said writ petition, the following reliefs were sought: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the writ petition is allowed and that decision assumed finality. 6. In the meantime, pursuant to the issue of the impugned order, the Government of Karnataka filed an affidavit before the Supreme Court in Writ Petition No. 35 of 1987 stating that respondent No. 4 would be wound up and that the produce from the forest land leased to respondent No. 4 would be made available to the public by auction through respondent No. 3. In view of this stand of the Government of Karnataka, the necessity to review the validity of the Government Order dated 13-7-1984 would not arise before the Apex Court on merit. In the circumstances, the Supreme Court disposed of writ Petition No. 35 of 1987 vide its order dated 26-3-1992 in Dr. Kota Sivram Karanth v. State of Karnataka [1992] 3 JT (SC) 167 as having become infructuous. After this event, on 19-8-1992, the Board of Directors of respondent No. 3 at its 127th meeting, spelt out the modalities to be followed by the CMD of third respondent to purchase the appellants shareholding in respondent No. 4 and amalgamation of respondent No. 4 with the third respondent. Accordingly, on 9-9-1992 a sum of Rs. 61,25,000 was paid to the appellant. On 16- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing consequential directions are issued : ( i )the first and the fourth respondents, may negotiate and settle and question of sale of shares and price of shares within a period of four months. ( ii )if first respondent decides to purchase the shares, the payment made shall be adjusted towards the prices, the difference if any being paid/refunded as the case may be. ( iii )if first respondent decides not to purchase the shares, the fourth respondent shall refund the amount to the first respondent with interest at 9 per cent per annum. ( e )Nothing stated in this order shall be construed as coming in the way of respondents 1, 2 and 4 giving effect to clauses ( a ) to ( e ) of the order dated 24-10-1991 in toto or with modifications, if they voluntarily agree to do so, in accordance with the provisions of the Companies Act, 1956." 8. Hence this Writ Appeal by the Management of Harihar Polyfibres. 9. We have heard Sri S. Vijaya Shankar, learned senior Counsel for the appellant, Sri M. Kumar, learned Counsel for respondent No. 3, Sri M.L.N. Reddy, learned Counsel for respondent No. 4, Sri Udaya Holla, learned Counsel for respondent No. 1 and Sri Nagarajulu Naidu, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tep in and nullify the policy decision taken by the Government and the third respondent-Corporation. 10. Learned Counsel for the respondent Nos. 1 and 2, on the other hand, would support the judgment of the learned single Judge and would maintain that the impugned order of the Government cannot be traced to any authority granted by law and, therefore, the learned Judge was justified in quashing the same. The learned Counsel would also meekly submit that the action of the State Government to wind up the fourth respondent-Company was not a bona fide exercise of power and it was intended to help the appellant and that is why the Government directed the third respondent-Corporation to purchase entire shares of the fourth respondent-Company. Learned Standing Counsel for the third respondent-Corporation quite curiously would support the case of the respondent Nos. 1 and 2. 11. We have perused the order of the learned single Judge. What ultimately weighed with the learned single Judge to allow the writ petition and issue directions impugned in this Writ Appeal is the fact that the contractual provision enabling the Government of Karnataka to issue the impugned GO was not traced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the decision to wind up the fourth respondent-company and subsequently to amalgamate that company with the third respondent-corporation is the outcome of a serious deliberation in the Board of Directors of third respondent-corporation and resultant resolution. 12. It is on 27-9-1990 itself a resolution was passed by the Board of Directors of fourth respondent-company at their 26th Board meeting, unanimously resolving that the assets and liabilities of the fourth respondent be taken over by the third respondent-Corporation and to close the Company. The resolution reads as follows : " Extract of the minutes of the 26th Board of Directors Meeting of the Karnataka Pulpwood Ltd. Held on 27th September, 1990 Sub : Closure of Karnataka Pulpwood Ltd. Taking into consideration of the resolution already moved by Sri S. Parameshwarappa the then Chairman-cum-Managing Director in the 20th Board Meeting held on 19-6-1980 suggesting to close the Karnataka Pulpwood Limited in view of the absence of guidelines from the Government, to the Government Directors in respect of continuance of planting activity and lack of financial support from the financial institutions and the promote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led with the correspondences between the management of the third respondent, forth respondent and the Government would clearly go to show that the initiative to close the industry came from fourth respondent-company initially and that was accepted by the third respondent-corporation. Therefore, it could not be said that the ultimate decision to wind up or subsequently amalgamate the fourth respondent-company is not the decision of the third respondent-corporation itself. Simply because in pursuance of the resolution passed by the respondent Nos. 3 and 4 and the requests made by them, the Government of Karnataka accorded its approval to wind up the Company, that fact itself would not vitiate the decision taken by the third and fourth respondents. Therefore, with great respect, we are not persuaded to fall in line with the opinion of the learned single Judge that the impugned Government Order is one without authority of law. Even assuming that the legal authority to issue the impugned order is not traceable to an authority granted by law, even then, only on the count and without examining the question whether the decision to wind up the fourth respondent-Company was taken by the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the book values of the assets and liabilities, as per the Audited Balance Sheet as at 31-3-1993. The method and manner under which the above valuation is arrived at has been furnished in the enclosed Annexure which forms part of this certificate. This certificate shall be read with the said Annexure along with the notes furnished therein." 16. However, dealing with the above certificate, the fourth respondent in its statement of objection has stated thus : "...Valuation certificate is only with regard to the share value. It has not taken into consideration the other aspects of the matter such as leasehold rights, liabilities etc., in terms of the solemn undertaking between the parties. It is submitted that the KPL was ordered to be wound up on the peculiar facts and circumstances of the case and it is not in the normal course of business. In these circumstances the valuation of the shares in terms of certificate Annexure E cannot be taken for the purpose of deciding the issue in the case on hand." 17. It is trite that the decision of the third respondent as approved by the Government of Karnataka to accept the suggestion made by the Board of Directors of the fourth respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not by rule of men . We would see the change in the stand of corporation from time to time without any reason or rhyme. The Corporation cannot be permitted to approbate and reprobate. It cannot be allowed to practise double standards. The Corporation having accepted the offer made by the fourth respondent-Company and having pursued the Government to agree to the said proposal, now cannot turn round and retract from its stand. An executive authority or the statutory authority like the third respondent-corporation must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of its action if taken in violation of them. Every activity of the third respondent-corporation could be tested for its validity on the touchstone of reasonableness, fairness in action and if it fails to satisfy the test, it would be unconstitutional and invalid. We are satisfied that the acceptance of the proposal of the fourth respondent-company to amalgamate or wind up would not result in any public injury; if it were to be so, perhaps, the Court would have stepped in and prevented the winding up of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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