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TMI Blog2008 (3) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... (in liquidation), is a company duly registered and incorporated under the provisions of the Companies Act, 1956, which was incorporated vide Certificate of incorporation No. 1546/68, dated 30-11-1968. This Company was wholly owned by the State Government and the main objectives for which the GSTC was incorporated are inter alia to take over and run as an, unemployment relief or otherwise any textile mill in Gujarat State, which is closed or likely to be closed or has gone into liquidation or otherwise and to manage and control any textile mill in Gujarat which may be taken over by the Government of India under the Industries (Development and Regulation) Act, 1951 and the management of which may be entrusted to the Company, and to run textile mills taken over by the Central Government on payment of the reserve price or on reconstruction under the provisions of the Cotton Textile Companies (Management of Undertaking and Liquidation or Reconstruction) Act, 1967 and entrusted to the GSTC for management, and to lend money to textile mill or Guarantee Loans secured by textile mills for scheduled Banks, Industrial Finance Corporation, Industrial Development Bank or any other Financial In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Gujarat State Textile Corporation as authorised controller. (ii)With effect from 1-1-1986 under the provisions of the Gujarat Sick Textile Undertaking Nationalization Ordinance, 1986 the Textile Undertaking was nationalized. The rights, title and interest of the owner stood transferred absolutely in the State Government and, thereafter, in GSTC free from any trust, charge line and encumbrances with effect from 1-1-1986 retrospectively. The Gujarat State Textile Undertaking Nationalization Ordinance, 1986 was repealed and substituted by the Gujarat Sick Textile Undertaking Nationalization Act, 1986. (iii)The Textile Undertaking was managed by the GSTC as an owner of the undertaking. The winding up order against the GSTC Ltd., was passed on 6-2-1997 by this Court. (iv)The period of management by the GSTC as authorised controller is post-take over management period. The period of management prior to that i.e. Management by private owner is pre-take over management period. (v)The post-take over period is classified as period prior to nationalization that is, management by authorised controller and the post-nationalization i.e., subsequent to the nationalization as the owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred Electricity Duty GEB 1,49,60,744 Unpaid Turnover Tax 496 Sales Tax Recovered to be paid 4,394 Baroda Municipal Corporation (Water Tax) 5,11,055 Unpaid Land Revenue 1,15,928 Baroda Municipal Corporation (Gas Octroi) 7,69,184 Sub Total (a) 2,01,94,448 Dues relating to Central Government : Central Division Baroda (Income-tax TDS) 12 Central Excise Authority, Baroda 11,359 Textile Committee Cess 1,29,908 Sub Total (b) 1,41,279 Workers dues including salary deductions : Workers dues 6,15,461 Sub Total (c) 6,15,461 Total (a + b + c) 2,09,51,188 9. The Municipal Commissioner, Vadodara has intimated to the State Government that they will negotiate amount due and payable to the State Government towards the dues of GSTC and this letter is placed on the record of this application. It is further stated that major parties relate to the dues of State Government and dues relating to the Central Government would be settled and paid after due negotiation. 10. The unsecured creditors shown in the statement of affairs are as under:-- Particulars Amount Dues relating to State Government : Gujarat Electricity Board (GEB) 14,20,088 Gujarat Industrial Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land taken on lease was 37.45 Acres. As per the Valuation Report of GITCO, the total area of the land taken on permanent lease by the Mills is 1,47,034 Sq.Mtrs. Prior to the closure of the Mills in the month of October, 1982 Board of Directors managed it. The other mill under the same management or associated with the same management group was Marsden Mills. 14. Before winding up of GSTC under an order of this Court, a Voluntary Retirement Scheme (VRS) was announced by GSTC under an agreement executed with recognised union. All the employees who were on the roll at that time were entitled to the benefits of the scheme. Accordingly, almost all the employees tendered their voluntary resignations to the management and were paid their terminal benefits and other dues in terms of the VRS Agreement. The total amount spent on payment of terminal benefits to the employees of the Mill under the said VRS Agreement is Rs. 3,075.19 lakhs. The said amount was paid by GSTC out of the funds provided by the State Government. The credit balance of GSTC in the books of Mills as on 6-2-1997 was Rs. 8,922.46 lakhs which represents the total amount advanced to the Mills since its Nationalization by GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to verification, total outstanding dues are Rs. 56,625,677. As stated earlier, approximately an amount of Rs. 56 crores is lying credited to the account of company with the Official Liquidator and hence the liabilities, if any, of all these units of the Company can be discharged from the said amount. The relevant break up of liabilities in respect of the Monogram Mills is determined by M/s. Suketu Trivedi & Co., in their report dated 16-8-2007 and relevant break up is as under:-- Post-Nationalization period liabilities :-- A. Secured Creditors List B :-- There are no secured creditors as on 6-2-1997 of post-nationalization period having any charge registered with Registrar of Companies. B. Preferential Creditors - List C : Particulars Amount Dues relating to State Government : Sales - tax 35,25,775 Deferred Electricity Duty GEB 1,73,64,523 Ahmedabad Muni. Corp. (Tax) 27,95,190 Others 1,63,308 Sub Total (a) 2,38,48,796 Dues relating to Central Government : Textile Committee Cess 4,12,086 Sub Total (b) 4,12,086 Workers dues including salary deductions: 2,36,049 Sub Total (c) 2,36,049 Total (a + b + c ) 2,44,96,931 Thus, as stated above, total liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,81,05,236 are related to State Government and dues aggregating to Rs. 2,20,89,659 have been directly settled by State Government. Thus, out of the total liabilities, the aggregate quantum of dues relating to State Government and dues directly discharged by the State Government works out to 92.17 per cent of the total dues. Thus, the major stake in the form of liabilities is of the State Government. 20. In addition to the discharge of dues of post-nationalization period covered under State Government guarantee or otherwise, State Government has directly discharged the pre-nationalization secured dues of Banks and Financial Institutions having charge on the assets of the undertaking duly registered in favour of respective Bank and Financial Institution with Registrar of Companies. However, such charges were released by virtue of the provisions contained in the Nationalization Act. The pre-nationalization dues comprised only of dues created under the management by private owner. The pre-nationalization dues of such secured creditors from subject-matter undertakings have been paid since nationalization to winding up and thereafter as under :-- Name of Bank/Institution Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking till the winding up of the company falls under the jurisdiction of the Official Liquidator. In respect of the liabilities prior to the date of nationalization vests with the Commissioner of Payments, appointed under the Nationalization Act and Official Liquidator has no obligation with regard to the liabilities of pre-nationalization period. Hence, the State Government is the major creditor of the Mill as well as the sole shareholder as the State Government holds all the equity shares of GSTC. 23. Mr. Shelat has further submitted that the State Government being the sole shareholder and the major creditor of Monogram Mills, Ahmedabad is justified in asking for balance assets remaining to be sold of the undertaking and held by the Official Liquidator for Priyalaxmi Mills and Monogram Mills on behalf of the State Government which is the owner being the sole equity shareholder of GSTC. So, the State Government, in all respect, justified and entitled to request for handing over the remaining property of the undertaking together with on hand balance lying with the Official Liquidator to the State Government as an absolute owner of the undertaking as surplus assets. 24. Mr. She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (Court) Rules, 1959. The assets, in any case, cannot be transferred free from all encumbrances without following the due process known to law for satisfying the encumbrances, liabilities and charges etc. He has further submitted that the State Government has not given any amount to the Official Liquidator as claimed. The applicant might have given certain amount to the Company before the date of passing of the winding up order. The dues of the applicant, if any, against the company shall be claimed in liquidation after crystallization of the claim by following the procedure under the Companies (Court) Rules, 1959 and classification thereof for determining priorities of payment in accordance with the provisions of sections 528 to 530 of the Companies Act, 1956. The assets of the Company chosen by the applicant, cannot be transferred and handed over to the applicant on the basis of exclusion of other various classes of the creditors. 28. He has further submitted that it is the duty of the Official Liquidator under direction of this Court to ensure that no creditor or group of creditors or class of creditors march over the legitimate rights of other creditors and classes of credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court for the Company as a whole, the assets and management of the company and its affairs, assets and effects together with liabilities may be handed to a duly constituted Board of Directors of the Company in accordance with the provisions of the Companies Act, 1956 in this regard by revoking, staying or recalling the winding up order and after discharging the Official Liquidator after payment of his expenses and Central Government fees. He has further submitted that only the chosen assets cannot be claimed by the applicant since it is neither permissible under any specific provision of the Companies Act, 1956 nor it is in the interest of beneficial winding up of the Company, on the contrary it is detrimental to the interest of other various classes or creditors. He has, therefore, submitted that the applications are misconceived and deserve to be rejected. 31. Mr. Mehta further submitted that the applicant in the past also moved a similar application being the Company Application No. 348 of 1997 which was disposed of by this Court vide order dated 22-7-1998 granting permission to withdraw the application with liberty to file appropriate application proposing a scheme. The appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nths time to simply redirect the comments to Ex-Director while Ex-Director required less than fifteen days to furnish the reply to the satisfaction of OL. In view of these facts, the ten weeks time sought by OL on the ground of study and scrutiny of Statement of Affairs is not tenable on the grounds of both facts and merits. The Statement of Affairs which has been described by OL as voluminous was prepared and submitted by Ex-Directors within three months of the winding up order while OL required about one year for its examination and scrutiny. It is really discouraging that OL needs ten weeks time for study of Statement of Affairs which was filed before 11 years and lying in his office since then. 34. Mr. Shelat further submitted that the Official Liquidator's contention that assets cannot be handed over on pick and choose basis but should be sold under auction has no substance or merits. The broad principles are laid down in the Companies Act, 1956 with regard to process of liquidation. The basic principle laid down in the Act is that the realization of assets should be distributed to the creditors in accordance with the priorities laid down therein and residual surplus, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance available with OL on 6-2-2004 was Rs. 4,627.70 lakhs. The balance available with OL at present must be much more than that and the said balance alone is many times more than the remaining outsiders dues, i.e., other than own dues of State Government. Hence, the objections and contentions raised by OL are quite contrary to the facts about status of outstanding outsiders dues and full protection to all such dues in the form of available on hand balance with OL in bank accounts. 36. Mr. Shelat has further submitted that there is no substance in the contention and objection raised purely on theoretical ground of non-compliance of all the provisions of Companies Act, 1956, with regard to sale of all the assets, crystalisation of liabilities, priority of liabilities etc. The theory is not substantiated by facts. Theory laid down in the Act is known to everybody but the corresponding facts are very important to determine the distribution of assets. In the present case, instead of selling the assets and distributing the proceeds among the creditors, State Government as owner and sole contributory opted to discharge the liabilities directly and claim residual assets on pick and ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets other than land have been sold and in the circumstances it is difficult to understand that how a revival scheme can be framed on vacant land in the name of company under liquidation. On the contrary, State Government is functioning exactly with the same spirit of revival and reconstruction for the purpose of generating employment and in the interest of the public at large on different projects under different name and style instead of implementing any such project under the name of GSTC. He has, therefore, submitted that the State Government can be said to be in total conformity with the provisions of the Companies Act, 1956. 40. Mr. Shelat has further submitted with regard to the earlier application filed and withdrawn by the State Government that the ground of objection at that time was absence of any revival and reconstruction scheme. Possession of the assets under present applications is sought for revival and reconstruction only through and under different names and projects which will be by other than GSTC and will create further employment opportunities and will be of public interest. Hence, the prayer of the applicant is quite in consonance with the spirit of the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 45. Section 457 of the Act deals with power of Liquidator. Section 457(1)(e) states that the Liquidator in a winding up by the Court shall have power with the sanction of the Court to do all such other things as may be, for winding up the affairs of the Company and distributing its assets. Section 475 of the Act empowers the Court to adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled thereto. It is true that the wordings of section 457(1)(e) as to the distribu-tion of assets amongst the members found are not as explicit as in section 511. Section 511 of the Act deals with distribution of property of the Company voluntarily wound up. However, section 457(1)(e) read with section 475, the result is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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