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TMI Blog2009 (3) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... for confirmation of sale of the only remaining items of the property, namely, the industrial shed in Plot No. 142, sector 24, Faridabad, M/s. Saket Steels Ltd., has obtained a decree in respect of the very same property for specific performance in a civil suit bearing No. 66 of 1990 and they have sought execution of the decree before this court. The Haryana State Electricity Board is another principal contender against the proposals for revival on the ground that money claims arising out of the same proceedings still remain unsatisfied and the petition for revival cannot be allowed. M/s. Freshness Coatings (P.) Ltd., which has been the successful bidder and whose sale is sought for confirmation by the Official Liquidator would oppose the petition on the ground that the sale of the property which is being made for favour of Rs. 4.10 crores is now sought to be undone at the instance of another person who is the seventh petitioner and it is only a ploy to sell the property to another person and there is no scope for revival of the company itself especially after the plant and machinery of the company which existed at industrial shed, Plot No. 136, sector 24, Faridabad, had already bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004, in favour of M/s. Excel Buildcon (P.) Ltd. The State Bank of India-respondent No. 2 was a secured creditor in respect of the other assets of the company bearing Plot No. 142, sector 24 and was interested in expediting the process to pay to itself the debts owed by DSECL from it. The State Bank of India had also a second charge over the assets of the factory premises in Plot No. 136, sector 24 and after a meeting which the official liquidator held, the property in Plot No. 142, sector 24, Faridabad was taken possession of and obtained permission of the court, vide its order dated February 9, 2006, for sale of the property in Plot No. 142 in association with the secured creditors by giving wide publicity. III. Simultaneous efforts by the ex-directors to settle claims by OTS : 4. Simultaneously with the efforts of the Official Liquidator to dispose of the property in Plot No. 142, the ex-directors and majority shareholders of the company had initiated for a one-time settlement with the State Bank of India and Haryana Financial Corporation, as well as settling the claims of the workers. The dues as claimed by the third respondent were paid by the directors with reservati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. Over 85 per cent of the equity shareholding was to be held with Mr. Sanjay Gulati and 15 per cent of the equity shareholding to be retained by Mr. K.K. Dabriwala on behalf of the existing shareholders of DSECL. V. The financial reckoning and the basis of objections for revival : HFC s woes : 6. The objections to the revival of the company have gone through several quarters. The Official Liquidator himself has filed a report giving out the details of the amounts available in the account of the company in liquidation as Rs. 75,37,054 including their FDRs on March 31, 2008 and setting out the provision for expenses to the tune of Rs. 10,21,740. The amount in deposit included Rs. 25,00,000 deposited by M/s. Freshness Coatings P. Ltd., for the purchase of property of the company situate at Plot No. 142, sector 24 and in respect to which confirmation was awaited through the application, C. A. No. 296 of 2006. The valuation fee and professional fee of the chartered accountant were also to be paid for which the application had been moved in C. A. Nos. 172-173 of 2008. The objection of the Haryana Financial Corporation is to the effect that the demands that had been directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the sole arbitrator was passed on March 2, 1987, granting relief of demand charges assessed at Rs. 10.4 lakhs and a net penalty of Rs. 6.4 lakhs but after deduction of the claim by the company for a sum of Rs. 6.4 lakhs, a net amount of Rs. 4 lakhs alone awarded in favour of the Electricity Board. It was not satisfied with the award passed by the arbitrator for the fact that the arbitrator had purportedly acted beyond his jurisdiction and waived the energy charges from November, 1979 to March 2, 1987, which was not within the ambit of the reference before the arbitrator. According to the Electricity Board, the amount recoverable from the company was to the tune of Rs. 42,43,621 and the reduction of the amount to Rs. 4 lakhs was on account of non-application of cogent mind and reasonable basis. This award had been challenged before the Senior Sub-Judge, Faridabad by a petition dated March 31, 1987 and the award of the arbitrator had also been upheld. The order passed by the Additional District Judge which accepted the claim of the Electricity Board to the tune of Rs. 10.4 lakhs was however not accepted by the Official Liquidator in view of the fact that leave of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquidation, permission was being sought for levying execution against the company-in-liquidation. This petition had been filed on July 6, 2006, before the company court. IX. DSECL s response to objections : 10. The parties have submitted authorities for various issues touching upon the dispute between the parties. Learned counsel appearing for the applicants seeking revival contends that since all the claims of the creditors have been fully satisfied except the claims of the Electricity Board and HFC, there cannot be any obstruction at the instance of any person for approving the proposal made by the applicants. Learned counsel concedes that he will make any amount that may be determined by the court as payable by the company to them. There is no need for following any formulations as detailed under sections 391, 393 and 394 in view of the fact that the special procedure is only to apprise the claims of the shareholders and creditors and since all the shareholders have jointly proposed the scheme for revival and since all the major creditors including the workers in the company have already been satisfied, the only creditors who remained were the Electricity Board and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen an order of winding up had been passed by the company court, sanction ought not to have been obtained before a decree was rendered. It must be remembered that the Hon ble Supreme Court itself has said in the judgment that the objective of section 446 of the Act was not to cancel or nullify or obtain any claim against the company but merely to protect unnecessary litigation and from multiplicity of proceedings and to further protect the assets for equal distributions amongst the creditors and shareholders. This object was achieved by compelling a creditor or person having a claim against a company to approach the court for obtaining necessary orders. 12. Raghunath Rai Bareja v. Punjab National Bank [2007] 135 Comp. Cas. 163 (SC), was a case where the Hon ble Court dealt with a situation when a decree had become time-barred and the court was found not to have jurisdiction to transfer a claim by a bank to the Debts Recovery Tribunal for enforcement under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, even if equity existed in favour of a bank to realise its dues and the bank had itself to blame in filing its execution petition beyond the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SICA where the company, which was engaged in financial activities, was proceeded with under the State Financial Corporations Act, 1951 and under the Kerala Revenue Recovery Act, 1968 and in the meanwhile, the company had gone for voluntary winding up. The High Court refused leave for continuing the recovery proceedings and the court held that the provisions of the Companies Act would govern the recovery of dues and, hence, the High Court was correct in refusing the grant of leave. It said that an order of attachment under the State Financial Corporations Act was passed for achieving the limited purpose and it has to be always understood as susceptible to other orders as well as provisions of the other statute. X. The objections omnibus in a nutshell : 13. The opposition for revival comes from a previous successful auction purchaser who obviously expects to take over the assets and obtain a profit through the transaction. Yet another person is a person, who has obtained a decree for specific enforcement of an agreement through a court process, although not decided on the merits after a full-fledged adjudication in trial but obtained on default of appearance by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidation, and whether such a proposal satisfies the elements of public interest and commercial morality. If the court finds the scheme to be a ruse to dispose of the assets by a private arrangement, then it is its duty to dispose of the properties of the company in liquidation, realise the assets and distribute the same in accordance with law". According to him, there is really no scope for revival of the company for the industrial assets of the company where the business was being run has already been disposed of. As a matter of record Plot No. 136 with the factory was disposed of in pursuance of the order of this court passed in C. A. No. 321 of 2003 for a consideration of Rs. 4.10 crores and confirmed by this court by its order dated September 17, 2004, passed in C. A. No. 110 of 2004 in C. P. No. 72 of 1995 in favour of M/s. Excel Buildcon (P.) Ltd., Delhi. XI. Revival, always the cherished goal : 15. Two views are definitely possible : If a company has lost its core assets of the plant and machinery and the residual property is merely a vacant piece of land, could it really be said to be bona fide in its claim that it seeks to revive the company ? There could jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go back to the company for the sale of its assets but if at all the sale should be done only through the Official Liquidator which could secure the best price. This order of the court had been challenged by the major shareholder of the company and the workers union. The company court s original order was modified by a Division Bench before it reached the Hon ble Supreme Court that the scheme of revival must again be considered instead of a direction for sale of the property through the Official Liquidator. The modified scheme contemplated a revival of only one of the activities of the company, namely, of the spinning unit and for facilitating the same it had contemplated a disposal of the portion of the assets. There were really several proposals coming from several quarters including the secured creditors. Starting a viable industry instead of selling any portion of the land was considered feasible. A re-convening of the meeting of the members of the company to consider the modifications and ensuring their approval seemed to be a necessary imperative for finalising the proposals for revival. It was in this context that the Hon ble Supreme Court said that a scheme which was merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he shall have to secure permission from the court to put the decree in execution in the manner contemplated by a decision of the Hon ble Supreme Court in State of Jammu Kashmir v. UCO Bank [2006] 129 Comp. Cas. 239 2 . According to him, the position of a decree-holder cannot be worse than a secured creditor especially when the pending proceedings had been initiated even before passing of the winding up order. To this proposition, he lays his hand on Harihar Nath s case ( supra ). The petitioner concedes that he cannot have any relief before the executing court which passed the decree when the winding up proceedings are before the company court and feels constrained to move this court seeking permission to execute the decree through the company court under section 446 of the Companies Act. The objections from counsel appearing on behalf of the ex-directors of the company are made under two counts : ( i )At the time when the decree was passed there had been already proceedings before the BIFR and there was a statutory stay of proceedings under section 22 of the SICA. The decree passed was, therefore, void ab initio . The stay of proceedings contemplated under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny after such commencement, shall be void". Learned counsel refers to decision of this court in Haryana Financial Corpn. v. Dev Papers ( P. ) Ltd. ( In Liquidation ) [2009] 150 Comp. Cas. 399 where this court held that mere enforcing execution is impermissible under the section what to say of attachment or sale of such property without the leave of the court. I am afraid that the said view cannot apply in view of the fact that no attachment, distress or execution is sought to be enforced by the court that passed the decree in its execution. On the other hand, the decree-holder has approached this court under section 446 for leave and for execution of the decree. ( ii ) Extent of bar under the Companies Act : 19. The other objection relating to the executability of the decree is urged by counsel, Mr. Anand Chhibbar on the ground that section 446 itself operates to create a stay in respect of any proceeding pending before it and I have no difficulty in accepting the contention of the decree-holder that the decree is not void ab initio but will be voidable at the instance of the company for proceeding to grant a decree in spite of the fact that the property had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party and the decision had not been rendered in his presence. Harihar Nath s case ( supra ) cited by counsel for the decree-holder does not still avail the decree-holder since the point in issue in that case was the limitation period applicable to proceedings being sought to be initiated with leave under section 446. There the court held that in a case of application for leave to initiate fresh proceeding, the period of limitation applicable is to be calculated not with regard to the application seeking for leave under section 446 but in regard to the suit or proceeding itself that is sought to be initiated. So long as the proceeding for which leave is sought is within time as on the date of the filing of the leave, the application will be entertained. The time spent for obtaining the leave under section 446 will have to be excluded by applying section 15(2) of the Limitation Act, 1963. In this case more than supporting his contention, it points out to an important thing that the application seeking sanction for execution will have to be itself filed within the time. The suit has been decreed on April 19, 1996 and the petition for sanction has been filed on July 3, 2006. The lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the amount was paid namely on July 14, 1987 and September 28,1987 of Rs. 50,000 and Rs. 1,00,000 at the rate of 12 per cent per annum till the date of payment. This amount as determined shall constitute a charge on the assets of the company. XIV. Regarding objections by the Electricity Board : 22. The objections of the Electricity Board come under two counts : ( i )by virtue of a resort to proceedings before an Arbitration Tribunal where an adjudication had been sought regarding the liability of the company for electric connection to the premises concerning "de- mand charges". The payment of energy charges themselves were not in dispute and hence not referred to arbitration. By an award dated March 2, 1987, that was before the date when the winding up order was made, a liability was fixed on the company for a net amount of Rs. 4 lakhs and directed it to be payable within 30 days from the making of the award. It has some default clauses as well. HSEB was dissatisfied with the award on the premise that the arbitrator had gone beyond his jurisdiction in entering upon a reference, which was specifically excluded from him on issue relating to energy charges. The energy c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent claim to make with reference to energy charges, it shall be open to them to resort to such action if at all admissible in law. I, however, direct that the amount of Rs. 6.61 lakhs as determined by the award and adjudicated before the Official Liquidator alone is required to be paid as constituting the demand charges lawfully payable by the company, which includes interest up to the date of the order of winding up. 24. C.A. No. 454 of 2008 seeking for permission to pursue the revision against the order of the Additional District Judge, Faridabad is disposed of on the above lines that the order of the Additional Judge is without jurisdiction as one passed after the order of winding up but HSEB would still be entitled to the amount as referred to above in the manner determined by the Official Liquidator in confirmation of the amount found by the Arbitrator at the first instance. XV. Answers as regards objection from HFC and in respect of all other sundry claims : 25. The objection coming from HFC, who is the third respondent, is with regard to the disbursement of Rs. 4.05 crores to the State Bank of India as including the claim by the State Bank of India against yet an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 41,000 3. Official Liquidator commission under account Head 104 6,57,992 4. Advertisement expenses due to the advertisement agency namely M/s. Nikita Media Services 1,78,555 5. Valuation expenses 79,249 6. Professional fees of chartered accountant 44,944 Total 10,21,740 29. That in addition to the above expenses earnest money for an amount of Rs. 25,00,000 is also lying deposited which was included in the total funds available with this office. The same was deposited by M/s. Freshness Coatings P. Limited in the office of the Official Liquidator on March 14, 2006 for purchase of the property of the company situated at Plot No. 142, Sector 24, Faridabad and confirmation of the sale in this regard has been pending in this Hon ble High Court bearing C. A. No. 296 of 2006 and fixed for April 10, 2008. 30. That in regard to payment of valuer fees and professional fees of chartered accountant this office has already moved an application bear- ing C. A. Nos. 172-73 of 2008 seeking permission of this Hon ble Court to make the payment fee from the sale proceed is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petition for revival is ordered as prayed for. ( ii )The fifth respondent, M/s. Saket Steels P. Ltd., shall be entitled to be paid Rs. 1,00,000 and Rs. 50,000 with interest at 12 per cent from the respective dates when the amounts were received by the company. ( iii )The application for confirmation of the sale in favour of M/s. Freshness Coatings (P.) Ltd., is disallowed but M/s. Freshness Coatings (P.) Ltd., shall have a right of refund of the amount, which is deposited in court and obtain a solatium of 5 per cent of the amount as bid at the auction and for which the confirmation of sale has been sought. ( iv )The amounts as adjudged by the Official Liquidator and found expressed in the report are approved and the amounts detailed in the report shall become payable by the company. ( v )Apart from the amount as determined by the Official Liquidator as payable to the Electricity Board, the HSEB and its successor DHBVNL shall have a remedy that it may independently have in relation to energy charges and the observations of the arbitrator or the Official Liquidator in that regard shall stand vacated. ( vi )The amounts as detailed above from out of the amounts in deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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