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TMI Blog2008 (11) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... its nominee in respect of the immovable property of the company purchased by M/s. Cosmos. However, no compensation can be claimed by M/s. Cosmos on account of delay in the completion of process of execution of the conveyance deed, since it cannot be said that the official liquidator has acted negligently in the matter. M/s. Cosmos participated in the court auction with open eyes, knowing fully well about the pendency of the claim of M/s. Gupta Refractories, as contained in C. A. No. 385 of 2007, as also the claim of M/s. MPFC in C. A. No. 165 of 2007. I am not inclined to allow M/s. Cosmos to withdraw any part of the sale consideration deposited by them. Instead they are permitted to exercise their rights unhindered, in any manner, in respect of the assets purchased by it in the aforesaid terms. Accordingly, C. A. Nos. 706 of 2007, 922 of 2007 and 1031 of 2008 filed by M/s. Cosmos are disposed of in the aforesaid terms. C. A. No. 165 of 2007 of MPFC is partially rejected in so far as it challenges the auction sale in favour of M/s. Gupta Refractories on the ground of it being hit by the provisions of the Companies Act. Other reliefs prayed for by MPFC would be considered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the applicant in its favour or in favour of its nominee and to complete all the requisite formalities in respect thereof. The applicant also seeks compensation for the delay in the completion of the said process. (d)C. A. No. 992 of 2007, filed on September 19, 2007 and C. A. No. 1031 of 2008, filed on September 16, 2008, by the auction purchaser Cosmos seeking the withdrawal of substantial part of the amount deposited by it to the extent of Rs. 6 crores on the ground that the disposal of the aforesaid applications is taking time. 2. The company in liquidation M/s. Consolidated Steels Alloys Ltd., filed a reference under section 15(1) of the SICA before the Board for Industrial and Financial Reconstruction being BIFR Case No. 62 of 1989. The BIFR conducted an enquiry under section 16 of the SICA and concluded that despite exploring all possible avenues the said company had not been able to work out any acceptable revival scheme which could enable it to turn its networth positive within a reasonable frame of time while meeting all its financial obligation. The BIFR formed the final opinion dated January 13, 1998, that it would be just and equitable in the public interest if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of Rs. 35 lakhs and the highest bid of Rs. 52 lakhs was offered by Shri J. P. Gutpa of M/s. Gupta Refractories, Gwalior. It was further recorded that the estimated value of the property sold in auction had been assessed by Shri A. K. Pathak at Rs. 4,78,800. M/s. Gupta Refractories deposited 25 per cent. of its bid amount of Rs. 52 lakhs. Shri J. P. Gupta of M/s. Gupta Refractories was declared the "purchaser" of the movable properties. The proceedings of the Tehsildar Morena of July 26, 2001, recorded in Hindi, along with its English translation, have been filed on record. At various places the said proceedings recorded that "Chal Sampati" has been sold to M/s. Gupta Refractories. 4. On or about August 8, 2001, a writ petition was filed before the Madhya Pradesh High Court, Gwalior Bench in the name of the company in liquidation being W. P. (C). No. 1341 of 2001 to seek the quashing of the demand raised by the Madhya Pradesh State Electricity Board and the process of auction initiated by the Collector and Tehsildar, District Morena for auctioning the factory of the company. A prohibition was sought against the Collector and Tehsildar, Morena from confirming the auction held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en accepted by the Tehsildar and the Collector. It was stated that some movable goods lying at the factory premises of the company in liquidation were delivered to the applicant M/s. Gupta Refractories from February 12, 2002 to February 25, 2002. It was further stated that initially the Madhya Pradesh High Court had stayed the delivery of the auctioned goods to the applicant M/s. Gupta Refractories vide order dated February 25, 2002, passed in Writ Petition No.325 of 2002, filed by the MPFC. However, the said order was modified on May 17, 2002 and the applicant M/s. Gupta Refractories was permitted to remove the remaining goods from the premises of the company in liquidation. The applicant M/s. Gupta Refractories further stated that between May 28, 2002 and June 5, 2002, movable goods were removed from the factory premises of the company in liquidation. It was further disclosed that MPFC moved I. A. No. 6197 of 2006 in Writ Petition No. 325 of 2002 before the Madhya Pradesh High Court to restrain M/s. Gupta Refractories from removing any further goods on the ground that they had taken delivery of all the remaining goods and there were no movable goods remaining in the factory premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the entire amount the highest bidder would be entitled to take possession of the property of the company in liquidation and to deploy its own security guards on payment of 25 per cent. of the bid amount. The court further directed that the auction purchaser, i.e., Cosmos shall not remove the machines from the premises till the entire bid amount is deposited with the official liquidator and possession of the premises is handed over to it. The applicant M/s. Gupta Refractories preferred two company appeals. The first being Company Appeal No. 19 of 2007 decided on April 24, 2007. By that order the Division Bench had expressed the hope that before directing the sale of plant, machinery and structures of the company in liquidation C. A. No. 385 of 2007 would be disposed of by the company court. The second Company Appeal No. 23 of 2007 was directed against the acceptance of the bid of Cosmos on April 26, 2007, as aforesaid, without first disposing of C. A. No. 385 of 2007. This Company Appeal No. 23 of 2007 was disposed of by the Division Bench on August 17, 2007, with the direction that C. A. No. 385 of 2007 be examined and dispose of by the company court before any further direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the said auction sale is hit by the aforesaid provisions of the Companies Act, 1956. No doubt the final opinion of the BIFR under section 20 of the SICA opining that the company in liquidation should be wound up in public interest was registered in this court as C. P. No. 25 of 1998 in the year 1998. However, it appears that no effective orders were passed by this court in those proceedings and it was only when the company petition, i.e., C. P. No. 428 of 2002 initiated by M/s. Rameshwar Dass Devi Dayal P. Ltd., was taken up that the court passed orders on September 13, 2004, admitting the petition and appointing the official liquidator attached to this court as the provisional liquidator. Thereafter on April 4, 2005, since no opposition was received to the winding up of the company in liquidation, this court directed final winding up of the company in liquidation and the official liquidator was directed to act as the liquidator of the said company. It is not the case of the MPFC that the Collector and Tehsildar, Morena, or M/s. Gupta Refractories were aware of the pendency of the aforesaid company petition bearing No. 25 of 1998. No publication had been directed by the court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he official liquidator shall deseal the premises to enable the applicant to remove the goods and after the goods are removed, the premises shall be sealed again." 11. Therefore, the view taken by this court in the said order dated April 4, 2005, was that the auction sale conducted by the Tehsildar, Morena, on July 26, 2001, was prior to the passing of the winding up order passed by this court. 12. Pertinently, the High Court of Madhya Pradesh while dealing with the Writ Petition (Civil) No. 1431 of 2001 filed by the company in liquidation vide order dated January 24, 2002, directed that the sale of the immovable property shall not be confirmed till the final decision of the petition. However, the sale of the movable property in auction was permitted by the court. MPFC by its conduct allowed a situation to arise wherein M/s. Gupta Refractories were able to remove a large chunk of the goods before the application for stay was taken up for consideration by the Madhya Pradesh High Court. The objections of MPFC were rejected by the Tehsildar, Morena on July 26, 2001 and he proceeded to hold the auction and declare M/s. Gupta Refractories as the purchaser. However, MPFC took no steps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete valuation report of M/s. Pathak and Associates with its annexures have not been placed on record. In the absence of the same that issue cannot be considered. 16. As to whether M/s. Gupta Refractories have removed only the movables, or even the immovable properties by cutting and dismantling the same, is also an issue which cannot be determined by me at this stage. To determine this aspect further enquiry is necessary to be conducted for which directions are presently being issued. I may also observe that the determination of this aspect is a serious concern of the court, since it has befallen upon the court to protect the legitimate interests and assets of the company in liquidation. 17. I now turn to consider the relief sought by M/s. Gupta Refractories in C.A. No. 385 of 2007. Having heard counsel for the parties, I am inclined to substantially reject the same. M/s. Gupta Refractories seeks to rely upon the valuation report prepared by A. K. Pathak and Associates dated July 20, 2001. Mr. Singla, learned counsel for M/s. Gupta Refractories submits that this report had valued the property at Rs. 47,08,800. Gupta Refractories had bid for the items covered by the said valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from Khan and Sirohi Electro Mechanical on May 30, 2001, whereby they had similarly made an offer to purchase all the assets excluding the land and building at the site for Rs. 2.25 crores. 21. A perusal of the application C. A. No. 385 of 2007 shows that the applicant, M/s. Gupta Refractories are seeking the inclusion of, inter alia, the structures and machines lying at the factory premises of the company in liquidation, within the scope of its purchase in the auction held by the Tehsildar, Morena. The contention of M/s. Gupta Refractories that it had purchased all the plant, machinery and structures of the company in liquidation and only the land, building and other permanent structures were not purchased by it is contradicted by its own statements made in earlier proceedings. All that was purportedly sold in the auction conducted by the Collector and Tehsildar, Morena, and that was purchased by it in the auction held on July 26, 2001, was only the "movable property" i.e., "Chal Sampatti". The proceedings sheet prepared by the Teshildar, Morena, clearly records that the bidders were informed that the immovable property was not being sold and only the Chal Sampatti was being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rupees fifty two lakhs (highest), which was done by Shri J. P. Gupta, M/s. Gupta Refectories, Gwalior. No other person was called excessive bid against such highest bid, therefore this bid was confirmed as last and final. A cheque of rupees thirteen lakhs, i.e., one-fourth of the last bid (rupees fifty two lakhs) was deposited." 24. The Nazir, Tehsil Morena sent a communication to the Additional Tehsildar, Morena on May 28, 2002, stating that on the said date a joint inventory of the movable properties had been prepared, which includes only those which were lying on the ground and were not attached to the earth. This inventory was prepared in the presence of M/s. Gupta Refractories. A list of the articles inventorised shows that it includes articles which are petty movables and not the plant and machinery installed at the factory premises in question. It was these articles which M/s. Gupta Refractories were entitled to remove and nothing more. 25. The Tehsildar, Morena has reported on June 9, 2002, that M/s. Gupta Refractories have removed all the movable assets lastly between May 28, 2002 and June 9, 2002. It has been reported by him that there is no other movable property e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of sale as machinery at any point of time. The facts as could be found also show that the purpose for which these machines were embedded was to use the plant as a factory for the manufacture of fertilizer at various stages of its production. Hence, the contention that these machines should be treated as movables cannot be accepted." 27. The same issue was also considered by the Supreme Court in (T. T. G. Industries Ltd. v. Collector of Central Excise [2004] 4 SCC 751 in the following words (page 928 of 2 RC) : "The appellant has placed considerable reliance on the principles enunciated and the test laid down by this court in Municipal Corporation of Greater Bombay v. Indian Oil Corporation Ltd. [1991] (Supp) 2 SCC 18, to determine what is immovable property. In that case the facts were that the respondent had taken on lease land over which it had put up, apart from other structures and buildings, six oil tanks for storage of petrol and petroleum products. Each tank rested on a foundation of sand having a height of 2 feet 6 inches with four inches thick asphalt layers to retain the sand. The steel plates were spread on the asphalt layer and the tank was put on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of processes employed in the erection of the machine, the manner in which it is installed and rendered functional, and other relevant facts which may lead one to conclude that what emerged as a result was not merely a machine but something which is in the nature of being immovable, and if required to be moved, cannot be moved without first dismantling it, and then re-erecting it at some other place. Some of the other decisions which we shall hereafter notice clarify the position further. In Quality Steel Tubes P. Ltd. v. Collector of Central Excise [1995] 2 SCC 372, the facts were that a tube mill and welding head were erected and installed by the appellant, a manufacturer of steel pipes and tubes, by purchasing certain items of plant and machinery in market and embedding them to earth and installing them to form a part of the tube mill and purchasing certain components from the market and assembling and installing them on the site to form part of the tube mill which was also covered in the process of welding facility. After noticing several decisions of this court, the court observed that the twin tests of exigibility of an article to duty under the Excise Act are that it mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderlying those decisions must apply to the facts of the case in hand. It cannot be disputed that such drilling machines and mudguns are not equipments which are usually shifted from one place to another, nor is it practicable to shift them frequently. Counsel for the appellant submitted before us that once they are erected and assembled they continue to operate from where they are positioned till such time as they are worn out or discarded. According to him they really become a component of the plant and machinery because without their aid a blast furnace cannot operate. It is not necessary for us to express any opinion as to whether the mudguns and the drilling machines are really a component of the plant and machinery of the steel plant, but we are satisfied that having regard to the manner in which these machines are erected and installed upon concrete structures, they do not answer the description of goods within the meaning of the term in the Excise Act." 28. Applying the aforesaid tests it is clear that the heavy machinery, plant and equipments, as also the sheds installed and erected by the company in liquidation, at the time of their installation/erection, were install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of fact of the lower court is not called for. 31. Reliance placed upon CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC), also appears to be misplaced. In that case there were two agreements. First pertained to immovable property, described in Part-I of Schedule and the second pertained to movable properties described in Part-II of the Schedule. It was argued that some of the properties described in Part II of the Schedule were really fixtures and would be "immovable property" as defined in the General Clauses Act and the Transfer of Property Act. They passed on to the transferee under the sale deed for the immovable property and therefore, their value should also be taken into account in assessing the chargeable income under section 12B of the Indian Income-tax Act, 1922. The Supreme Court held that the question whether the registered sale deed included any of the fixtures mentioned in Part II of the Schedule or not, must be decided purely on the construction of sale deed. Fixtures attached to the land will pass on the sale of the land under section 8 of the Transfer of Property Act. However, this is subject to any different intention which may be expressed or be necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and machinery, land and building dated December 4, 2006. In this report, the valuer reports : "1.02 We had physically verified and inspected the machines together with the rep. of the court (Mr. Khurana), Shri B. L. Chadha of M/s. Chadha and Associates again on December 1, 2006. No plant and machinery is in complete form. The removable parts of the entire plant and machinery have already been removed (see earlier report given). 1.03 All visual electric cables/wires have been cut and removed. The fitments in all electric control panels namely contractors, relays, connectors, wiring, copper bus bars, etc., found missing. Only skeleton remain is there." 35. From this it prima facie appears that M/s. Gupta Refractories have not only removed the movables, but in the garb of removing the movables they have even removed the parts of the plant and machinery which was assembled and installed at the site, and were attached to the earth. From the materials placed on record as at present, it is not possible for the court to come to any definite conclusion on this aspect, or as to the quantity, nature, weight and value of the items dismantled from the plant and machinery at the factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same with the inventories of the items removed by M/s. Gupta Refractories. The local commissioner shall also take the assistance of a professional photographer and shall take photographs of all the properties found at the site. The local commissioner shall also estimate with the help of the expert mechanical engineer, the scrap value of the parts/machinery, if any, found missing, which if present, would have formed part of the plant and machinery attached to the earth. The said value shall be worked out on the basis of the rates for scrap metal prevalent in July, 2001, when the auction was held by the Tehsildar, Morena and by indicating the approximate weight of such part/machinery. The Tehsildar, representatives of the subsequent auction purchaser M/s. Cosmos, M/s. Gupta Refractories, MPFC, the secured creditors and the official liquidator, shall be given prior notice by the local commissioner of the time of execution of commission and they shall be entitled to be present at the site during the time of inspection if they so choose. Looking to the nature and magnitude of work involved, the tentative fees of the local commissioner is fixed at Rs. 50,000 which would be paid, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich may have been already removed by it. This arrangement would enable M/s. Cosmos to deal with the asset for which it has paid a substantial amount of Rs. 6.15 crores some time after April, 2007 and they would not have to further await the adjudication of the claims/liabilities, if any, of M/s. Gupta Refractories. 39. I further direct the official liquidator to execute the conveyance deed in favour of M/s. Cosmos or its nominee in respect of the immovable property of the company purchased by M/s. Cosmos. However, in my view, no compensation can be claimed by M/s. Cosmos on account of delay in the completion of process of execution of the conveyance deed, since it cannot be said that the official liquidator has acted negligently in the matter. M/s. Cosmos participated in the court auction with open eyes, knowing fully well about the pendency of the claim of M/s. Gupta Refractories, as contained in C. A. No. 385 of 2007, as also the claim of M/s. MPFC in C. A. No. 165 of 2007. 40. I am not inclined to allow M/s. Cosmos to withdraw any part of the sale consideration deposited by them. Instead they are permitted to exercise their rights unhindered, in any manner, in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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