Cement Factories- Dalla, Chunar, and Churk-facts
and findings
The
UP State Cement Corporation Ltd was incorporated in 1972 and had its production
units at three places—Dalla, Chunar, and Churk—in District Mirzapur in UP. It
had an installed capacity of 1.680 million tonnes of cement.
U.P.Govvernment
in (1989-91) had advertised for the privatisation of four PSUs in the state,
the cement unit being one of them.
However,
resistance by workers led to a firing at Dalla in 1991, leading to deaths
Government
after initial resistance cancelled the deal with Sanjay Dalmia over the sale of
the unit. But the unit after one year went into losses and in three years, the
losses mounted to such an extent that it had to be closed down.
The
floor price for auction has been kept at Rs 271 crore, which is Rs 40 crore
higher than the price at which the previous deal between the UP government and
Grasim was concluded. Deal between Grasim and the UP government was opposed by
Lafarge.
And
that deal was annulled by the Allahabad High Court on the grounds that the
state had no authority to sell the assets of the company when it was under
liquidation by the orders of the High Court. The latter ruled that the assets
be re-auctioned, this time through the formation of an asset sale committee,
thus paving the way for the present expression of interest, which is to be
followed by bidding.
The
order of winding up was passed in the year 1999; the sale of the said assets
was approved on the 30th of January, 2006 and the order of confirmation was
passed on the 11th of October, 2006. The State Cabinet incidentally decided to
abide by the decision given by the Company Court on the day before, i.e., on
the 10th of October, 2006 and as such, the State Government has wholly
supported purchasers, i.e., Jai Prakash Associates Ltd., namely, JAL.
http://www.religareonline.com/fundamental/report.aspx?ReportType=Chair&CompanyCode=11520073.00&CompanyName=Religare%20Enterprises%20Ltd&MajorSector=1&Ticker=Religare%20+%20En
Jaiprakash
Associates Ltd.
(BSE: 532532 |
NSE: JPASSOCIATEQ | ISIN: INE455F01025
Chairman
Speech
It
gives me great pleasure to welcome you all to the 9th Annual General Meeting of
Jaiprakash Associates Ltd. (JAL). The Company's accounts for the year ended
March 31, 2006, along with the Directors' report, Auditors' report and
Management Discussion and Analysis, have already been circulated to you. With
your permission, I would like to take them as read.
The
company has taken necessary steps to take possession of the assets of UP State
Cement Corporation Ltd. (in liq), the sale of assets of which were confirmed in
favor of the company by Hon'ble High Court of Judicature at Allahabad on the
11th of October 2006. Revival and modernization are in process to ensure
commencement of cement production to its capacity (>2.0 MTPA) between
March'07 and March'08
Cases
1----------- Churk Cement Mazdoor
Sangh, Churk And Others vs State Of U.P. And Others AIR 1992 All 88
2----------HIGH COURT OF JUDICATURE OF ALLAHABAD
In chamber
MISC. COMPANY APPLICATION NO. 4 OF 1997
In the matter of
U.P. State Cement Corporation Ltd. ( In Liq.)
Hon'ble Sunil Ambwani, J.
3------ Cement Workers Union And Ors. vs Board For Industrial And Financial
Reconstruction And Ors. on 8/12/1999
2000
100 CompCas 76 All, (2000) 1 UPLBEC 392
4----- In Re: U.P. Cement Corporation Ltd. (In
Liquidation) vs on 14/2/2002
2002 112 CompCas 562 All
5---------HIGH COURT OF JUDICATURE OF ALLAHABAD
CJ's
Court
Company
Appeal No.1239 of 2006
RPJ
Minerals Private Limited and another
Vs.
Shri S.K. Saxena, Official Liquidator, U.P. State Cements
Corporation Ltd. & Others Dt:
27.10.2006
6--------- HIGH COURT OF JUDICATURE AT ALLAHABAD
Special Appeal No. 1341 of 2007
U.P. Industrial Cooperative Association Ltd.
Vs.
Official Liquidator, Attached to Hon'ble High
Court of Judicature at Allahabad
Dt/-29.10.2007
7-------- In Re: U.P. State
Cement Corporation Ltd. (In Liq.) vs on 27/4/2007
JUDGMENT
Sunil Ambwani, J.
1
Churk Cement Mazdoor Sangh, Churk And Others vs State Of U.P. And Others
AIR 1992 All 88
ORDER
1. These writ
petitions call in question the validity and legality of the sale by Government
of U. P. of 51% shares in a wholly Government owned public sector Corporation,
U. P. State Cement Corporation Ltd. (UPSCCL) in favour of Dalmia Industries
(Respondent No. 5 in W. P. No. 10607 of 1991).
2. In the State of U. P., there are only
three major cement factories, besides a few small units. All the three major
units are in the public sector. They are Churk Cement Factory, Dala Cement
Factory and Kajaar-hat-Chunar Cement Factory. In 1972, the State Government
formed a Government Company known as U. P. State Cement Corporation Ltd.
(UPSCCL), which came to own these factories. It appears that two of these
factories were started even prior to the incorporation of the Corporation,
while the third was installed and commissioned by the Corporation itself.
3. The total
installed capacity of the three plants is 25.60 lakhs M. T. per annum. Viewed
in terms of their installed capacity, the Corporation is the third largest
cement manu-facturer in the country. Its Board of Directors is comprised of 15
directors, of which five are nominated by the Governor, two by the Financial
Institutions, and the remaining elected by the Board/share-holders, which again
means the State Government. For one or the other reason -- indeed, the reasons
appear to be many -- the aclual production has been far below national average
of cement factories. According to the company's own publication, production in
the year 1985-86, 86-87, 87-88 and 88-89 has been 42.54, 39.45 and 44.92
and..... per cent respectively. According to the Corporation, the wet process
employed in the Churk Factory is based upon an absolete technology; plant and
machinery have also become worn out due to prolonged use. A modernisation and
rehabilitation scheme has been prepared, which is likely to cost Rs. 52.25
crores. Even at the Dala Factory, which employs the dry process, there have
been several problems, modernisation and rehabilitation scheme prepared for
this plant is expected to cost about rupees 45 crores. (Fortunately, however,
the Corporation is not burdened with surplus labour, a common feature of public
sector enterprises. According to a publication of the Corporation, the surplus
labour is only 364 in the three units put together, which is likely to
disappear in the next 4-5 years with the imposition of strict ban on fresh
recruitment, now in force). As a result of unusually low production, and for
several other reasons, the Corporation has been incurring substantial losses
over the last two decades. With every passing year, losses have been mounting.
4. The authorised
share capital of the Corporation is Rs. 80 crores, while the subscribed paid-up
share capital is Rs. 63.53 crores, entirely contributed by the State.
Accumulated losses, according to the counter-affidavit filed by the State
Government, over the years 1972-73 to 1988-89 are in the region of Rs. 155
crores by March 31, 1991, it was expected to reach the figure of Rs. 180
crores. In the circumstances, the Corporation was obliged to borrow heavily
from Industrial Development Bank of India
(about Rs. 5 crores) and the Allahabad
(Rs. 5 crores). The Corporation has borrowed substantial amounts from the State
Government (more than Rs. 10 crores). According to the counter-affidavit, the
outstandings to the Financial Institutions is in the region of Rs. 100 crores
(55 crores principal and 46 crores interest).
5. The Corporation
employs about seven thousand persons. The three factories are jointly located
over an area of 13.5 square kilo metres. On the said land have come up, besides
the manufacturing units and the auxiliary buildings, six residential colonies comprising
more than 5,000 dwelling units, and six recognised educational institutions.
The company owns three lime-stone mines as well, spread over an area of about
30 sq. kms. The Corporation also owns a property in Lucknow known as 'Cement Bhawan'. It has
entered into a contract with Bokaro Steels for supply of slag at concessional
rates, which has still 20 years to run. These facts alleged in W. P. No. 10607
of 1991 are not disputed in the counter-affidavit filed by the State. The
petitioners have further alleged that the total value of these assets including
the limestone mines and Bokaro contract is Rs. 700 crores. The respondents have
denied this valuation, but have not chosen to give their own valuation.
Part II : 6. In view
of the continuing losses incurred by the Corporation, the Government appears to
have been thinking of ways to cut these losses. Various alternatives were
explored, including the sale of units and joint-venture. Ultimately, it was
decided to convert the said Corporation into a joint sector Corporation. It
would be appropriate to notice the course of events leading to the agreement in
question between the State Government and the Dalmia Industries (respondent No.
5), whereunder the State has agreed to sell 51% of the stock at the rate of Rs.
75/- per share, at the same time extending certain concessions and
accommodations. These facts are drawn from the records placed before us by the
counsel for respondents in pursuance to our direction.
7. In the Economic
Times dated 1-5-1990, an advertisement (occupying a space of 5" x 4")
was published by the State Government of U. P. stating that the State
Government had decided to privatise the U. P. State Cement Corporation Ltd. and
that the desirous and reputed entrepreneurs may come for briefing on 19-5-1990
at 11 a.m. It was published in the name of D. K. Mittal, Special Secretary to
Government of U.P., Industries Department. Interested persons were asked to
contact the Special Secretary for further details and also for submission of
their proposals. This advertisement did not specify whether the Corporation was
to be privatised in its entirety or whether a joint venture was proposed to be
entered into. All that it said was that the State Government had decided to
privatise the said Corporation and that the parties interested may come for
briefing on the specified day and time and contact the Special Secretary for
further details.
8. On 15th June,
1990, the Hon'ble Chief Minister, white presenting the budget, reaffirmed his
Government's faith in the public sector, but at the same time said that in
respect of units incurring losses, steps are being taken to redress the
situation either by merger, rehabilitation, or by placing them in the joint
sector. He said that those units, which cannot be rehabilitated, will be
closed. He disclosed that the State Government has, on the basis of a
preliminary scrutiny, invited proposals from private entrepreneurs in respect
of certain units and that an officer of the rank of Secretary to Government has
been deputed to process the matter further.
9. In pursuance of
the advertisement dated 1-5-1990, several industrialists responded. On
19-5-1990, a meeting was held in the office of the Principal Secretary,
Industries, Government of U. P. According to the minutes of this meeting, as
many as 25 entrepreneurs participated in it. The Principal Secretary explained
in details the status of the Corporation and gave a detailed note covering all
its aspects including the balance-sheet of 1988-89. He informed the participants
that the State Government had decided to convert the Corporation into
joint-sector by inducting private management, and that it would not make any
further investment therein either by way of loan or by way of Government
guarantees. He informed them that there ought to be no retrenchment of workers
and that it was a pre-condition to any agreement. The entrepreneurs were asked
to send their offers based upon the above points and on the further assumption
that the reliefs available to sick units as per policy of the State Government
and guidelines of the Reserve Bank of India would be made available.
Offers were invited before the end of June, 1990. The detailed note supplied to
the participants contained several particulars relating to assets, capacity,
annual production, finances, debts and so on.
10. By a proceeding
dated 27th August, 1990, a committee known as Privatisation Committee was
constituted by the Government to negotiate with prospective entrepreneurs in
the matter of privatisation of loss-making Government units. It comprised seven
members, namely, 1. Principal Secretary, Public Enterprise Department
(Chairman), 2. Shri Ram Baijal, Ex-Chairman, IEL Group, Noida, 3. Col. B. K.
Rai, Ex-Managing Director, U. P. Electronic Corporation, 4. Secretary of the
concerned Administrative Department, 5. a nominee of the Chairman of IDBI,6. a
nominee of the State Bank of India
and 7. Secretary, Public Enterprise Department. This Committee was to deal with
the privatisation of four companies, namely, 1. U.P, State Cement Corporation
Ltd., 2. Auto Tractors Ltd., 3. U.P. Tyres and Tubes Ltd. and 4. U.P.
Instruments Ltd.
11. The first meeting
of the Privatisation Committee took place on 11-9-1990 where it deliberated
upon the various aspects of the job entrusted to it. One of the important
matters discussed at this meeting was 'valuation' of the units (subject 3). One
of the members Sri A. K. Puri expressed the opinion that it is essential to
have all the units valued properly by reputed approved valuers. It was necessary,
in his view, to find the main assets and investments in each of the units (vide
page 3 of Annexure V11I in the Material Paper Book supplied by the Government).
Sri Puri also suggested names of five approved valuers for this purpose,
namely, 1. A. F. Ferguson & Co., New
Delhi, 2. P. N. S. Advisory Service, New Delhi, 3. Price Water-house Associates, New Delhi, 4. Ray &
Ray, New Delhi and 5. S.R. Botliboi & Co., Bombay. The Committee decided that a
sub-committee of four members including Sri Puri will decide upon the agency
through which the units shall be got valued. It is significant to notice that
in spite of this decision, the unit in question (UPSCCL) was not got valued by
any of the aforementioned valuers/agencies.
12. It is not
necessary to refer to the proceedings of the second meeting of the
Privatisation Committee (PC), since nothing significant was transacted thereat.
Meanwhile, negotiations were being held with the Associated Cement Companies
(ACC). The said company requested the PC to have an immediate valuation of the
U PSCCL carried out by a reputed firm of chartered accountants to determine a
realistic basis for negotiations. They suggested the name of M/s. S. B.
Billimoria & Co., Bombay,
for the purpose (vide letter of ACC dated 20-9-1990 in the Material Paper Book
supplied by the Slate Government). Accordingly, the Government of U.P. asked
Billimoria & Co. to undertake the job. Parameters of the study were
indicated in the letter of the Government dated 10-10-1990 addressed to the
said firm of chartered accountants. (A copy of the letter has, however, not
been made available to us). The cost of the said study was to be shared by the
Government and the ACC in equal proportion. The said firm carried out a study
and submitted its report, comprised in two volumes, on 10-10-1990. They valued
the shares of the Corporation at Rs. 20/- each. (The face value of the shares
is Rs. 100/-each). After receiving the said report, ACC wrote to the Government
on 12-11-1990, indicating the main features of their offer, on the basis of
which they were prepared to enter into a joint sector agreement. Certain
negotiations appear to have laken place in pursuance thereof between the
PC/Government and the ACC. We have not been apprised of the particulars of
these negotiations, particularly of the discussions which are said to have
taken place on 21st and 22nd November, 1990 at Lucknow. What is relevant is that on 28th
December, 1990, ACC wrote to the Government indicating their disinterest in the
matter. The relevant paragraph of that letter reads thus :--
"I write further
to my letter dated 12th November, 1990 and the subsequent discussions my
colleague Mr. I.M.M. Mabiar and I had with you and the Privatisation Committee
on 21st and 22nd December, 1990 at Lucknow.
In the light of our
discussions, the matter was further considered by us along with Senior
Directors of the company. Having regard to the large accumulated losses and
recurring burden of excessive work force, it was felt that it will not be
possible for the ACC to restructure UPSCCL and run it on a viable basis within
the broad parameters of privatisation indicated by you and your colleagues
during the discussions. We, therefore, deeply regret our inability to take any
further interest in the proposal."
13. In December,
1990, an offer was received from the Raymond Woollen Mills. They were
interesled in an outright purchase of all the assets. They were not prepared to
take over any of the liabilities. This offer was given no serious consideration
by the PC. The Orient Paper Mills, who had earlier made an offer, expressed
their inability to enter into a joint venture. The net result was that by the
end of the year, only the Dalmia Industries (R-5) remained in the field. Their
offer was considered by the PC at its meeting held on 11-1-1991. We think it
relevant to refer to the minutes of this meeting at some length.
Indeed, it would be
appropriate to extract the entire minutes relating to the UPSCCL, considered as
item 2.
(MINUTES)
"Item No. 2.
Outlining the details
given in item 2 of the agenda notes, Chairman elaborated as to how the
Sub-Committee started the negotiations with the parties concerned with just two
stipulations from the State Government side and how during the discussions a
pattern for collaboration emerged. He also informed that the contents of
Billimoria's valuation report was made available to other parties also in the
final round of discussions.
Members agreed that
there is an immediate need for privatisation since Government will be avoiding
the substantial cash tosses incurred year after year and Government will also
stand to benefit through increased tax inflows as the capacity utilisation
improves under private sector management.
Members then
discussed the parameters that had emerged during the negotiations by the
sub-committee and approved them as under :--
1. UPSCCL will be
handed over to the joint sector promoter on an 'as is where is' basis with all
the assets and liabilities.
2. The joint sector
arrangement will be Govt : Private Promoter--49 : 51.
At the time of any
future disinvestment by the Government, they will give the first offer of the
shares to the promoter on a mutually agreed price to be decided at that time.
3. While Government
might need an initial payment at the time of signing of the MOU, balance
payments wilt have to be paid in instalments as per an agreed time schedule.
The promoter will have to provide sufficient and satisfactory guarantee for
this balance amount. The promoter will also pay interest on this amount from
the day of the agreement at a mutually agreed rate of interest to be paid in
half yearly instalments.
4. The promoter will
bring in funds re- quired for the short term and long term investments in the
corporation according to a pre-determined investment plan.
5. The promoter will
take over the labour on an 'as is where is' basis and after taking over the
management will decide on the future course of action.
6. State Government
will be requested to make available the ST.
deferment concession. They would also be requested to consider deferring the
payment of liabilities due to the State Government and its agencies.
7. As regards
concessions from financial Institutions and Banks, State Government will assist
the promoter in his negotiations to get these as are available to sick units
that are being revived.
8. Representation on
the Board will be in the same ratio of share holding. The Chairman will be
nominated by the State Government and full time Managing Director by the
promoter.
U.P. Asbestos had not
given any firm offer. Thus there were only two sealed offers received from M/s.
ACC and M/s. Dalmia regarding the price of the shares at which they are willing
to come in as joint sector partners. These two covers were opened at the meeting.
It was found that M/
s. ACC had expressed their regrets about their inability to take any further
interest in the proposal. The other offer of M/s. Dalmia was, therefore, the
only one to be considered.
M/s. Dalmia
Industries Ltd. have offered for a share having face valued Rs. 100/-.
Rs. 45/- With no
benefits available from financial institutions. Rs. 72/- With all the benefits
like
i) reduction of rate
of interest
ii) writing off penal
and compound interest on the term loan iii) Converting the interest due into
interest free loan. Rs. 100/- If along with the benefits from
the financial
institutions, State
Govt. also write off
the entire
amount of contingent
liabilities
as on date of take
over.
The Committee felt
that the offer contained a number of conditionalities and desired a firm offer.
What concessions will be available from the financial institutions will only be
known after the joint sector venture comes into existence and discussions are
held by the private promoter with the financial institutions.
Sri Pravin Kumar who
represented M/s. Dalmia Industries was called before the committee. The members
wanted to know from him the details of the investment plan and turn around
strategy, the general details about the Dalmia group, its annual cash generating
capacity, etc.
Sri Pravin Kumar
explained his groups operations. He said the current annual turnover was around
Rs. 600 crores which is expected to increase to Rs. 1000 crores. He agreed to
send a 2 page brief about the Dalmia group.
As regards the turn
around strategy, he stated that they would be concentrating on the Dalla units,
make them operate at 80-85% capacity utilisation, to generate revenue surplus.
They would be taking up a rehabilitation plan for Churk only later. As regards
surplus labour he was of the opinion that to have industrial peace, they may
not like to attempt any reduction in the first year and may plan
rationalisation only later. For the short term investments of 10-15 crores
required, they would be depending on internal resources of the group and will
be approaching the financial Institutions only for the modernisation programme
which would need around Rs. 120 crores.
As regards
guarantees, Sri Pravin Kumar agreed to provide corporate guarantee from the
Dalmia Industries as also from the other group companies which will be
investing in UPSCCL.
Sri Pravin Kumar was
informed that the following concessions could be recommended to the State
Government for consideration :--
i) Sales tax
deferment for 5 years as per the approved scheme.
ii) Rescheduling of
about Rs. 25 crores payable to different State Government departments. The
payment schedule will be a moratorium period of 3 years followed by payment in
5 equal annual instalments.
The interest payment
for these rescheduled liabilities will be 12% p.a. with a rebate of 3% for
timely and prompt payments. There will be no moratorium on interest payment --
that is -- interest is payable on the outstanding amount from the date of the
agreement.
iii) Among the
contingent liabilities, Rs. 140 lakhs towards sales tax cases and Rs. 11 lakhs
towards stamp duty may be considered for write off. All other contingent
liabilities will be the responsibility of the promoter. Efforts will also be
made to drop the pending sales tax cases.
Given these concessions
which could be reasonably expected to be granted by the State Government Sri
Pravin Kumar was expected to give a firm price. The committee also informed him
that no commitment can be made on behalf of Financial Institutions and Banks
regarding the concessions that would be available.
He should while
arriving at the price make whatever assumptions he would like to make regarding
the usual concessions that would generally be available to a sick unit.
Sri Pravin Kumar
finally offered a price of Rs. 75/- per share. The members felt that this was a
very fair offer and should be recommended to the Government.
The Committee,
therefore, decided to recommend that the offer of M/s. Dalmia Industries be
accepted. The committee authorised the Sub-Committee to prepare a draft MOU on
the terms and conditions indicated above and the final recommendations to the
Government."
14. On 19-1-1991, the
Chairman of the PC wrote to the Chief Secretary to Government of U.P. that
terms of joint venture have been settled with Dalmias and that the IDBI has
also welcomed the proposals. He referred to the proceedings of the PC dated
11-1-1991 wherein the Deputy General Manager of the IDBI participated. It was
said that the said Deputy General Manager apprised Sri Nadkarni, Chairman of
the IDBI, of the proposals on telephone and that Sri Nadkarni welcomed the
same. The letter further states that Sri Nadkarni also verified the financial
status of Dalmia Industries and said that there was nothing against them.
15. A memo of understanding
(MOU) was finalised and signed by both the parties, i.e., the State Government
and the Dalmia Industries. (The MOU does not bear the date on which it was
signed nor could the Counsel for the State furnish us the date. It, however,
appears that it was executed sometime in January/February, 1991). It would be
appropriate to set out the MOU in full :
(MOU)
"M.O.U. between
the Industries Department, U.P. State Govt. and M/s. Daimia Industries Ltd.
The Government of
U.P. and M/s. Dalmia Industries Ltd. have agreed to enter into Joint Sector
Agreement in respect of U.P. State Cement Corporation Ltd.
1. Dalmias will take
over the management of UPSCCL taking over all the asseis 'as is where is'
basis.
2. The Joint Sector
Agreement will be U.P.
State Government :
Dalmias 49 : 51.
3. The shares with a
face value of Rs. 100/-at present will be disinvested by the State Government
to Dalmias at a price of Rs. 75/-per share.
4. Dalmias will pay
to the Government on entering into an agreement an amount of Rs. five crores as
per the following schedules :
At the times of
signing Rs. One crore.
the agreement.
After three months of
Rs. Two crores.
signing the
agreement.
After six months of
Rs. Two crores.
signing the
agreement.
The later two
payments will also be made at the beginning itself by post dated cheques.
5. Balance amount
shall be paid within Twenty Four months from the date of this M.O.U. This
balance amount will carry an interest of 12% p.a. from the date of the
agreement till the date it is paid to the State Government.
6. This balance
amount mentioned in para 5 above as and when it is paid by the Dalmias will be
reinvested by the State Government as secured loans or against secured
debentures into UPSCCL and these loans will carry the same rate of interests of
12% p.a. These loans debentures are repayable after a period of five years in
four equal annual instalments.
7. Whenever the State
Government decides to disinvest its remaining shares, Dalmias will be given the
first right to purchase the same at a mutually agreed price to be fixed at that
time.
8. Immediately on
entering into an agreement with the State Government, Dalmias will furnish a
Corporate guarantee and also guarantees from the other companies of the group
who will be investing the UPSCCL for the balance amount mentioned in para 6
above.
9. All the employees
of UPSCCL will be taken over on an 'as is where is' basis by the Joint Sector
venture.
10. Representation on
the Board of Directors will be in the same ratio as the share holding. State
Government will have four Directors and Dalmias five Directors. The Chairman
will be nominated by the State Government out of the four Directors and the
full time Managing Director by the Dalmias out of the five Directors.
11. The capital basis
of the Corporation will not be changed without the prior consultation and
agreement of the U.P.
State Government.
12. Dalmias hereby
give an undertaking that they will run UPSCCL as a cement manufacturing unit at
least for a minimum period of five years.
13. If Dalmias are not
able to meet any of the commitments given to the State Govern ment at the time
of the formation of the Joint Venture, in addition to the stipulation that the
internal and external auditors shall be ap pointed in consultation with the
State Gov ernment, the State Government will be at liberty to take over the
management of the Company.
14. Other than what
has been stated above, there will be no further inflow of funds to UPSCCL, in
future from the Government.
15. State Government
will not give any guarantee for any funds to be raised in future by the
Management of UPSCCL.
16. After the Joint
Sector Venture comes into existence, on application UPSCCL may be granted the
following concessions :
i) Sales Tax
deferment facility for five years.
ii) Rescheduling the
liabilities due to the State Government and its agencies to the tune of Rs.
Twenty Five Crores the payment schedule will be a moratorium period of three
years followed by payments in five equal annual instalments.
The interest payment
for these rescheduled liabilities will be 12% p.a. with a rebate of 3% for
timely and prompt payments. There will be no moratorium for interest payment
that is interest is payable on the outstanding amount from the date of
agreement.
iii) Contingent liabilities of Rs.
1.4 crores to the Sales Tax Deptt., and Rs. 11 Lakhs towards stamp duty shall
be waived. Further the Sales Tax Depatment will be requested to drop all past
cases.
16. All other
contingent liabilities other than what has been mentioned in item 15 above
shall be payable by UPSCCL if and when they materialise.
17. The memorandum of
articles of association will have to be suitably amended to reflect the changed
version of the company and other changes envisaged in the Board etc."
The terms of the MOU
were also incorporated in a G.O. issued by the Government on 13 / 23rd
February, 1991, and another G.O. issued on 23rd February, 1991.
16. Another meetp1
ing of the PC was convened on 4-3-1991, but the meeting could not go on because
of a forged stay order produced before the Committee. As to who was responsible
for and who produced this forged order, we shall discuss elsewhere. At this
stage, it is sufficient to notice that the meeting could not take place. When
it was discovered that the order produced before the meeting was a forged one,
another urgent meeting was called on 7th March, 1991, telephonicaliy, and it
was held on that day. At this meeting, it was resolved to transfer 49 per cent
of the shares in the UPSCCL in favour of the Dalmia Industries and their nominees,
and for this purpose, a share Transfer Committee was constituted. It may be
mentioned here that the decision to transfer only 49 per cent shares, and not
51 per cent shares as per the MOU, was taken in view of the stay order dated
16-10-1990 passed by this Court, to which we shall refer presently. Another
step taken at this meeting was to accept the resignation of certain directors
from the Board of Directors of the UPSCCL and induction of four Directors who
were the nominees of the Dalmia Industries.
Part III : 17. W.P.
No. 26223 of 1990 was filed on 16-10-1990 by several trade unions and
employees' unions. It is evident that by the said date (16-10-1990), nothing
concrete had emerged. The writ petition was based upon the apprehension that
the Corporation was being privatised, which would affect the service conditions
and the very continuance in service of the workers and employees. The prayer in
the writ petition was to call for the records relating to the decision of the
Government to privatise the UPSCCL and to quash the said decision. It was also
prayed that the services of the employees, workers and officers of the
Corporation should be continued as of date. It came up before a learned single
Judge on 16-10-1990 and the following order was passed on the stay application
:--
"Learned counsel
for the petitioners has stated that the State Government has taken a decision
to privatise the U.P. Cement Corporation and necessary steps are being taken to
implement the aforesaid decision.
Until further orders,
the final implementation of the decision to hand over the factories, run by the
Corporation, shall remain stayed during pendency of the writ petition. However,
in the meantime, other formalities may be completed (Sd. S. C. Verma J.)"
18. On 13-3-1991, the
Churk Cement Adhikari Kalyan Samiti filed the second writ petition at Lucknow, numbered as W.P.
No. 1003 of 1991. By this date, the agreement between the Government and the
Datmia Industries had been arrived at and the transaction practically
finalised. The petitioners themselves filed a copy of the MOU and the GOs
aforementioned and questioned the same on several grounds. The reliefs sought
for in this writ petition arc :
(i) quashing the
Government orders dated 13/23rd February, 1991 and 23rd February, 1991,
respectively;
(ii) quashing the
MOU;
and
(iii) ardirestion to
the respondent Government to consider the proposals submitted by the employees
of the Company for running the Company on the terms incorporated therein.
Certain interim
orders were passed in this Writ Petition on 13/3, 15/3, 29/3 and again on
9-4-1991. It is not necessary to refer to them in any detail. Suffice it to say
that the interim order passed on 15-3-1991 was vacated on 9-4-1991 and the writ
petition was directed to be heard along with the other writ petition filed at Allahabad. The said writ
petition was accordingly transferred to Allahabad
and renumbered as W.P. No. 10607 of 1991. The following are the averments in
this writ petition :
19. The U.P. State
Cement Corporation Ltd. is a Stale within the meaning of Art. 12 of the
Constitution. It is a Government company and all its shares are held by the
State Government. It was incorporated in 1972. The Government exercises
far-reaching control over the company. It owns three cement factories, which
are located over an area of 13.5 sq kms. In the said area are located the
manufacturing units and their auxiliary buildings, six residential colonies
comprising five thousand dwelling units, six recognised educational
institutions and three lime-stone mines. The value of the land is more than Rs.
100 crores at the rate of Rs. 100/- per square yard. The cost of the
residential building's is rupees 55 crores. The lime-stone mines yield, on an
average, two lakhs of metric tons per month. There are roads, railways, tracks,
electrical installations within the said area. The Corporation also owns a
property known as 'Cement Bhawan' at Ashok Marg in Lucknow. The cash in bank account is in the
sum of Rs. 8.82, crores, which is supported by the note dated 25-2-1991
prepared by the Accounts Officer of the Company. The company has also a
subsisting contract with Bokaro Steels for supply of slag at a rate less than
1/3rd of the current market rate. This contract has still to run for 20 years.
This is a great advantage. The installed capacity of the three Cement Factories
is 25.60 M.T. of cement per annum. The cost of installation of a cement plant
is Rs. 2000 per metric ton, which would mean that cost of setting up a cement
plant of that capacity would be more than Rs. 500/- crores. The existing
inventory of the Corporation is valued at Rs. 25 crores. Eighty per cent of the
cement produced by the Company is sold to the State Government Departments and
only 20 per cent to public. Sale
to Government is at a lesser rate than the market rate. The installed capacity
of the three cement factories is equal to 50 per cent of the annual consumption
of cement in the State. Corpora- tion is paying Excise duty in sum of Rs. 2l
crores annually and a sum of Rs. 1.25 crores towards royalty and Welfare Cess
to State Government. It also pays Rs. nine crores as Sales Tax every year. On
1-5-1990, the Government published an advertisement in the Economic Times,
indicating its intention to privatise the Corporation and inviting offers. The
employees of the Company have also submitted a proposal (a copy of which is
Annexure 8 to the writ petition), which has been neither considered nor any
orders passed thereon by the Government. While so, on 13/23rd February, 1991,
the Government issued a G.O. stating that a decision had been arrived at to
sell 51% of shares in the said Corporation in favour of Dalmia Industries
(R-5). Another G.O. has also been issued on 23-2-1991. A memo of understanding
is also said to have been executed between the Government and the Dalmia
Industries in pursuance of the said proceedings. Five persons nominated by the
Dalmias are going to be appointed to the Board of Directors of the Company.
Shares are also going to be transferred to the said party. The said MOU, G.P.
and the agreement are all illegal inasmuch as the State Government had at no
point of time issued any advertisement or public notice notifying its decision
to run the Corporation as a joint sector company nor were any offers invited on
that basis. All the terms and conditions have been finalised only after
choosing the transferee and in private negotiations with them. The procedure
adopted is neither proper nor fair and is violative of Art. 14 of the
Constitution. Valuable public property Worth several hundreds of crores is
gifted away in favour of Dalmia Industries (R-5) for a token payment of Rs. One
crorc. Besides the low price, several attractive concessions and incentives are
also extended to the said respondent. The entire transaction is vitiated by
secrecy and is prejudicial to public interest. The transaction is contrary to
the provisions of S. 30-B of the Monopolies and Restrictive Trade Practices
Act, 1969. It is also contrary to the agreements the Corporation has entered
into with the Financial Agencies namely IDBI, SBI and Allahabad Bank,
whereunder the Corpora- tion has undertaken not to transfer any of its shares
except with the prior approval of IDBI. No such prior approval has been
obtained. There has been no proper valuation of the shares or properties of the
Company. The transaction is prejudicial to the public interest and
unconstitutional and has been arrived at in a clandestine manner.
20. On behalf of the
respondents, a counter-affidavit has been filed on behalf of the Government of
U.P. (R-1), which has been adopted and affirmed by respondents 2 to 4 (UPSCCL
and its officers) and the Dalmia Industries (R-5). We shall, therefore, refer
to the contents of the counter-affidavit filed by 1st respondent.
The petitioner has no
locus standi to maintain the present writ petition. The employees of the
Corporation are not Government employees and do not have the protection of Art.
311 of the Constitution. They have no right to challenge the policy decision of
the Government to privatise the Corporation or to enter into a joint sector
agreement. The rights and privileges of the workers of the Corporation are not
affected in any manner by the agreement entered into between the Government and
the 5th respondent. The fifth respondent has agreed to take the employees of
the Corporation on 'as is where is' basis. The petitioner has suppressed
material facts, on which ground alone the writ petition is liable to be thrown
out. In W.P. No. 26223 of 1990, the petitioner (in W.P. No. 10607 of 1991)
filed an application to implead itself on 25th February, 1991. Though the said
application was heard on 4th March, 1991 by a learned single Judge of this
Court, no orders were passed thereon. The said petitioner moved a stay application
also, requesting the Court to stop the holding of the meeting of the Board of
Directors of the Corporation scheduled to be held on 4-3-1991. No orders were
passed thereon. The application has merely adjourned to 29th April, 1991.
Having thus failed in their attempt to obtain a stay order from this Court, a
forged stay order (purporting to have been passed on 27th February, 1991) was
delivered to the Chairman of the Corporation along with a covering letter
purported to have been written by the Churk Cement Staff Association. The
meeting convened on 4th March, 1991 was adjourned on that account. After
discovering that it was a forged order, a meeting of the Board was held on 7th
March, 1991. This conduct of the petitioner disentitles to it any relief from
this Court; the writ petition must be dismissed on this ground itself.
The decision to
convert the corporation into a Joint Sector Corporation was taken after due
consideration. It is neither arbitrary nor is open to judicial review. The.
installed capacity of the three cement factories owned by the Corporation is,
no doubt, 25.6 lakhs M.T. per annum, but it has been regularly and consistently
incurring losses from the year 1972-73 except for one year 1982-83. It has
never been able to fully utilise its installed capacity. For example, during
the years 1987-88 and 1988-89, it could utilise only 44 per cent of its
installed capacity. It has further fallen to 32 to 35 per cent in the
subsequent year. The Corporation has incurred, losses of Rs. 155 crores til!
31-3-1990. It has been incurring loss of over rupees two crores per month. By
31st March, 1991, the losses are likely to reach the figure of Rs. 180 crores.
It has been continuously defaulting in payment of State dues, namely,
electricity charges, sales tax, etc. In the year 1990, the Government
sanctioned a sum of Rs. 10 crores to enable the Corporation to pay its
electricity bills. Even so, electricity dues are mounting. Dues of other
financial institutions are also substantial. The principal amount outstanding
to them is Rs. 55 crores and interest 46 crores. The entire capital of the
Corporation (Rs.68 crores) has been wiped off by the losses. Production has
been continuously going down. In these circumstances, decision was taken by the
Cabinet in its meeting held on 20th April, 1990 to convert this public sector
Corporation into a joint sector Corporation in order to minimise the recurring
losses. Accordingly, an advertisement was published in Economic Times on 1st
May, 1990. Officers were invited. To process these offers a high level
committee, called the Privatisation Committee (PC), was consti- tuted and the
offers received were duty scrutinised and processed. The question of valuation
was referred to an independent and recognised valuer who determined the value
of the shares of the Corporation at Rs. 20/-per share (face value being Rs. 100
per share). Indeed, some parties felt that even this was an over-valuation.
After several meetings and discussions, the Dalmia Industries offered to
purchase the shares at the rate of Rs. 75/- per share, which was found to be
best offer, and accordingly, the deal was finalised with it.
There is no basis for
any apprehension in the minds of the workers and employees of the Corporation
regarding their service conditions. Cl. 9 of the MOU clearly safeguards their
service. Government is not divesting itself totally. Moreover Art. 125(a) of
the Articles of Association of the Corporation empowers the Governor to give
binding directions. It is a sufficient safeguard. Because of the poor
performance of these units, a stage had arrived where it was difficult for the
State to run these factories. Government's financial position also does not
permit any substantial investment, which may be required for redressing the
situation. The proposal submitted by the workmen is not feasible or workable.
They have not indicated the guarantee which they can furnish to the Government.
It is for this reason that they were not called for discussions.
In view of the orders
of this Court dated 16-10-1990, the Government did not transfer 51 per cent of
shares, but transferred only 49 per cent shares. The shares have been
transferred and duly registered and recorded in the register of members of the
Corporation on 19-3-1991. The transaction entered into is a fair and
appropriate one, in all the circumstances. The 5th respondent has already paid
a sum of rupees two crores and has also furnished security for a sum of Rupees
21 crores to the State Government in terms of the MOU. So far as the concessions
said to have been given to the 5th respondent are concerned, they are the
normal concessions extended to all sick and loss making units. In any event,
these concessions were taken into account while fixing the value of Shares at
Rs. 75/- each. It is untrue that under the terms and conditions of the
transaction entered into between the Government and the 5th res-r pondent, the
latter is getting a benefit of Rs. 770 crores. It is really an exaggerated and
unrealistic figure. Even today, the Board of Directors of the Corporation
consists of 15 directors of which four would be the nominees of the State
Government, five of the Dalmias, two of the Financial Institutions, one of the
State Bank of India, and two of the Railways. In other words, Dalmias do not have
a majority in the Board of Directors. There is no violation of any of the
provisions of M.R.T.P. Act. The nominees of the financial Institutions like
IDBI are parties to the agreement and have approved the Came. The properties of
the Corporation continue with the Corporation and they are not transferred to
the 5th respondent. The writ petition accordingly deserves to be dismissed.
Part IV : 21. Sri S.
P. Gupta, learned counsel for the petitioners in both the writ petitions, urged
the following contentions :
(1) U.P. State Cement
Corporation Ltd. has been established by the State of Uttar Pradesh in discharge of the duty
placed upon it by Part IV of the Constitution. Establishment of the Corporation
is directly related to Art. 38, Cls. (b) and (c) of Art. 39 and Art. 43A. As
held by the Supreme Court in Akadasi Padhan v. State of Orissa, AIR 1963 SC 1047, reaffirmed in Tinsukhia Electric Supply case (1989) 3 SCC
709 : (AIR 1990 SC 123), our Constitution has accepted; and incorporates the
doctrinaire approach to socialism as distinguished from rational/ pragmatic
approach. Privatisation of public sector companies is a direct negation of the
philosophy underlying our Constitution. It is also held by the Supreme Court
that nationalisation must be deemed to be in public interest. This is the
inference drawn from Cl. (6) of Art. 19. From this, it follows that any act of
denationalisation, total or partial, is against public interest. Privatisation
of public sector concerns, whether total or partial, is contrary to the
Directive principles contained in Part IV in particular, Cls. (b) and (c) of
Art. 39. It has again been ruled out by the Supreme Court that any executive
act or legislation which runs counter to these directive principles must be
deemed to be contrary to public interest. Privatisation is per se
unconstitutional and against public interest,
2. Even assuming that
privatisation of a loss-making public concern is permissible, the transaction
and the agreement arrived at by the State Government with the Dalmia Industries
(R-5) is an unreasonable one and contrary to public interest. 51 per cent
shares in a public sector Company, worth several hundred crores of rupees, is
being made over for a song. What the Government ultimately got is only rupees
one crore and, even if the Dalmia Industries pays the subsequent instalments of
rupees two crores each, it will only be rupees five crores. The rest is only a
promise which amount again is to be deployed back for the purposes of the
Corporation, The substantial concessions and facilities extended under the
agreement are themselves worth several crores of rupees. The deal smacks of
arbitrariness, underhand dealing and a total surrender of public interest to
favour a private party. The procedure adopted for and the manner in which the
negotiations took place and the agreement arrived at are neither open nor fair.
Prior approval of the IDBI was not obtained, as required by the agreement
between the Corporation and the Financial Agencies dated 27th February, 1978.
3. The agreement and
the understanding in question are violative of S. 30-B of M.R.T.P. Act.
4. The Government
acted arbitrarily in not at all considering the offer made by the workers and
employees of the Corporation. They were not invited for discussions, while the
other entereprencurs were. The reasons given in the counter-affidavit for not
considering the worker's offer are totally unsustainable and are not borne out
from the record produced by the respondents themselves.
Serious objection was
taken by the learned counsel to the State of U.P. and the Dalmia Industries (respondents
1 and 5. respectively in W.P. No. 10607 of 1991) being represented by the same
counsel. He submitted that both of them engaging the same Counsel is not only
inappropriate but also speaks volumes of the total surrender of public interest
by the Slate in favour of, and to promote the interest of a private parly. He
made grievance of the fact that a firm of solicitors Khetan & Co. was engaged
by the Cement Corporation and the 5th respondent, and a substantial amount of
rupees five lakhs was paid from out of the funds of the Cement Corporation by
way of fees to the said solicitors.
22. On the other
hand, Sri Sudhir Chandra learned counsel appearing for the State of U.P. and the Dalmia
Induslries, made the following submissions.
(i) That the first
writ petition (W.P. No. 26223 of 1990) was filed by the workers and employees'
unions questioning the privatisation move, on the apprehension that any such
privatisation would affect their conditions of service adversely and may result
in their relrenchment. This apprehension is belied in view of Cl. 9 of the MOU,
which expressly provides that "all employees of UPSCCL will be taken over
on 'as is where is' basis in the joint sector venture." Indeed, this was
one of the preconditions stipulated by the Government before entering into any
joint venture agreement. Since all the employees of the Corporation will be
continued in service of the Corporation even after it becomes a joint sector
venture, there is absolutely no room for any such apprehension on the part of
the employees. In view of the said clause in the MOU, the very cause of action
for this writ, petition disappears. The employees and workers thus lose
whatever locus standi they had for maintaining the first writ petition.
(ii) Writ Petition
No. 10607 of 1991 must be thrown out in view of the fraud played by the
petitioners, viz., producing a forged order and getting the meeting dated
4-3-1991 adjourned on that basis. Having failed to obtain an order from this
Court, they forged and fabricated an order, which conduct by itself disentitles
them to any discretionary relief from this Court under Art. 226 of the
Constitution.
(iii) the impugned
agreement and under-Standing with 5th respondent was not arrived at by the
Government in a hurry. It is the culmination of an elaborate and protracted
scrutiny and negotiations by a high level body. It has also been blessed and
approved by the financial agencies like the IDBI. In the light of the huge
losses accumulated by the Corporation and its constantly falling production,
its inability to meet its financial and other obligations, and also in view of
the anxiety of the State Government to cut its tosses and not to invest any
further amounts in the said factories, the deal arrived at is the best one in
the circumstances. There has been no secrecy nor any underhand dealing in the
matter. The transaction has been only arrived at. In fact, one of the causes
for the poor performance of the Corporation is indiscipline among workmen, and,
in particular, corruption among the officers of the Corporation. The officers
of the Corporation had been siphoning off the properties and products of the
Corporation. They have thus developed a vested interest in the public sector
management. They are afraid that if the 5th respondent takes over the
management, they would not be allowed to indulge in these corrupt activities.
That is the real reason why they have come forward with the present writ
peiitions.
(iv) In matters of
this nature, this Court, while exercising jurisdiction under Art. 226 of the
Constitution, does not sit as an Appellate Court. Its jurisdiction is only to
see that the Government has acted fairly, and once it is satisfied on that
score, no further scrutiny is permissible. In view of the fact that ACC and
other entrepreneurs backed out, and in view of the further fact that the
Dalmias offered to purchase the shares of the Corporation at Rs. 75/- per share
as against Rs. 20/- (the value placed upon them by Billimoria and Co. Bombay),
the deal must be said to be in the interest of public and the State. The
concessions extended to the 5th respondent are neither unusual nor out of
ordinary. They are the normal concessions extended to any sick or loss making
unit -- or for that matter, to a newly established industrial unit.
23. We may mention
that Shri S. P. Gupta, learned counsel for the petitioners, disclaimed any role
or responsibility for production of the forged order on 4-3-1991. He said that
none of the petitioners are responsible therefor. He said that the said order
was not produced by any of the petitioners or their representatives. It is said
to have been produced by the Chairman of the Corporation from out of his
pocket. There is absolutely no material he says in our opinion rightly to
connect the petitioners with the said affair. He further submitted that Cl. 9
of the MOU does not fully safeguard the service conditions of the employees. He
submitted that there was an agreement between the Corporation and the workers
to treat them on par with the employees of the Cement Corporation of India and
this may not he honoured by the new management dominated by the 5th respondent.
In any event, he submitted that when it is brought to the notice of this Court
that public property worth several hundred of crores of rupees is being parted
with in favour of a private party for practically no consideration, this Court
must step into protect public interest and examine the matter to safeguard the
interest of the public and the State.
Part V : 24. It is
not alleged by the petitioners that the State of Uttar Pradesh has embarked upon
privatisation as a matter of policy. The State also does not-say so, nor is
there any material to hold so. It is not privatising all the public sector
Corporations as a matter of principle or as a matter of ideological or
philosphical faith. It is privatising only those public sector Corporations
which have been consistently incurring losses over the last several years and
where it finds that it is not possible for it to redress the situation and to
put the industry back on rails. Let us take the case of this very Corporation.
Over the last 20 years, it has been consistently incurring losses except for
one year. Its entire capital base has been wiped out. It owes more than Rupees
100 crores to financial Institutions. To put it on proper lines, substantial
fresh investment is necessary, which the Government is not in a position to
spare. In these circumstances, the Government has decided to privatise it. Mr.
Gupta says that instead of deciding to privatise it, the Government ought to
have tried to identify the causes of the failure and to take steps to rectify
the same. This, he says, is the constitutional obligation of the State. But as
we have pointed hereinbefore, the real problem is not the identification of the
causes -- they are too well known; the real problem is the will and the
capacity to take steps to rectify the situation. Successive Governments have
found it beyond themselves to redress the situation over the last twenty years.
The Government has its own limitations and compulsions. In this situation, it
took the decision to privatise. It cannot be said to be a mala fide decision.
The petitioners may have a different view, but that is not very material. It
was for the Government to take the decision and in the circumstances, it cannot
be termed to be a colourable one i.e. arrived at for achieving an ulterior or
oblique objective. No unconstitutionality is involved in this decision.
Similarly, it is true, as has been held on the basis of the provisions in Art.
19(6), that nationalisation must be deemed to be in public interest. But from
this it does not follow that any and every act of
denationalisation/privatisation
is per se contrary to public interest. Indeed, in a given case, privatisation
may be in public interest. After all, whose money is lost if a public sector
enterprise incurs huge losses consistently? It is public money -- whether it comes
from Government funds or DBI or SBI. One may have to weigh all the factors and
determine what is ultimately in public interest. So long as the decision is
arrived at by the Government bona fide, this Court cannot sit in judgment over
it. In the circumstances of UPSCCL, we cannot say that the decision of the
Government to privatise it is not a bona fide decision. We are unable to see
how such a decision can be said to violate the directive principles in Arts. 38
and 39. These Articles point out the goal; they do not prescribe a particular
path. A Government is not precluded from acting as any other prudent owner
would in such circumstances. The privatisation in question is only an instance
of prudent management, which any other owner in the position of the State
Government could have undertaken. We cannot read the decisions cited by Mr.
Gupla as laying down any proposition that whatever be the situation, no public
sector concern can ever be privatised. It is also not a case where the
Government is seeking to privatise a public sector concern merely because it is
incurring losses. If that were the only ground, the situation would probably
have been different, but here is a case where in addition to continuous losses,
there has been a constant and steady fall in actual production vis-a-vis the
installed capacity. Moreover, huge funds are also required for rehabilitating
the units, which the Government thinks it is in no position to provide. In such
a situation, it cannot be said that the decision to privatise the UPSCCL is
either a mala fide one or that it is prohibited by the constitutional
provisions. The contention urged by Mr. S. P. Gupta may become relevant if and
when the State embarks upon privatisation as a matter of policy or ideological
compulsion, unrelated to the facts and circumstances of the public sector
ventures. It need not be considered in these writ petitions. This discussion,
however, calls for a brief reference to the trend of privatisation gaining
currency all over the world.
25. A fresh wind of
change is blowing across the globe, the wind of privatisation --some call it
the process of disinvestment (by State) though both terms may not- be
synonymous.
The years following
the termination of world war II was many a former colony emerging as a free
nation. India
was one among them. Jawahar Lal Nehru had a vision of India which aimed at political, social and
economic justice to the people of India. In economic sphere, it meant
growth accompanied by distributive justice; it contemplated State playing a
dominant role in reshaping the Indian economy. The concept of welfare state, he
envisioned, called for State control of the commanding heights of the economy.
The Industrial policy resolution gave shape to this thinking. It was felt that
capitalist path of development does not suit this country, nor can it follow
the path trod by Soviet Union. A humanist path
towards socialistic pattern of society was ideal for India. Cls.(b) and (c) of Art. 39
of the Constitution illustrated this ideal. According to it, the State shall,
in particular, direct its policy towards security "(b) that the ownership
and control of the material resources of the community are so distributed as
best to subserve the common good (and) (c)that the operation of the economic system
does not result in the concentration of wealth and means of production to the
common detriment." As is well known, there were two competing economic
doctrines-- one spoke of growth and growth alone, while the other spoke of
growth accompanied by distributive justice. Cls, (b) and (c) of Art. 39
illustrate the latter doctrine. The Industrial policy resolution of 1948
clearly contemplated the State controlling the commanding heights. It is in
pursuance of this policy that substantial resources of the State were diverted
to establishment of key industries, nationalisation of several important
sectors, like insurance, transport, power, banking and so on. It was said that
private enterprise in India
is neither willing nor is capable of establishing heavy industries, which the
State alone must undertake. Theories propounded by certain British economists
of labour persuasion influenced our thinking at that stage.
The experiment of
State-run industries has not been happy in England. It has been much less
happy in India.
While other countries in Europe progressed by
leaps and bounds, British economy stagnated. Then came Mrs. Margaret Thacher
with the slogan of privatisation. She undertook the job of disinvestment with
gusto. Major British industries from British Airways down to Traffic Lights
were privatised. The process is still on. Shares in these companies were sold
to public at large. Result is that 30 per cent or more of the British
population has become stock holders. Whether on account of this or otherwise,
British economy turned the corner. Towards the close of 1980s, Russian economy
reached a critical stage. It was realised that total state control of the
economy over centralisation was having a deadening effect upon the average
man's initiative, drive and enterprise. People had no incentive to work and to
produce more. It was felt that a market oriented economy -- or what is called
market friendly economy -- is the solution. They started restructuring their
economy accordingly what is popularly known as 'perestroika' accompanied by
'glasnost' (Openness). Other eastern European countries hitherto following the
Soviet Pattern started changing at a greater speed -- it has been a lurch away
from socialist economy. These winds of change could not but affect the thinking
in our country as well. It is infecting the entire world. In mid 80s our
Government veered round to the view that a sheltered and protected economy,
which may have served us well at the initial stages of development, is no
longer workable. It led to deterioration in the quality" of our products;
they could not compete in the world market, they were priced out. Without a
proper level of exports, our balance of payments position became precarious. In
such a situation, the view that liberalisation of the economy is the answer,
gained acceptance in official thinking. The idea was to integrate our economy
into world economy, to make our industries compete with industries the world
over. But what about the public sector? How does it rhyme with the new thinking?
Leviathan in proportions, it has not been growing even at, what is derisively
called, the 'Hindu rate of growth : And what about the losses being merrily run
up by many of them? Even taking an overall picture, the publip sector as a
whole has not been yielding a profit of more than 2 to 3 per cent of the
capital invested in it. Several economists, committees and commissions have
gone into the causes of this poor performance, and have suggested several steps
to redress it. (A brief discussion of this aspect is found in paras 29 to 31 of
a judgment rendered by one of us (Jeevan Reddy C.J.) in Grindwell Norton v.
A.P.S.E.B. AIR 1989 Andh Pra 14. But nothing meaningful could be done to repair
the situation. Meanwhile, our economy has been steadily going downhill, which
developed its own compulsions, which we need not refer to here. Willy nilly, we
seem to have embarked on a.process of disinvestment by State. It is as yet in
an emerging stage, of course.
PART VI : 26. The
more important and crucial question to be examined is how did the Government go
about it; how did it proceed in the matter; did it adopt and follow a procedure
consistent with public interest; and did it safeguard public interest while
parting with a major chunk of its ownership in a major public sector
Corporation? That the Court is entitled to examine these questions is beyond
the pale of controversy. In Fertilizer
Corporation Kamgar Union, Sindri v. Union of India, AIR 1981 SC 344, the Supreme Court proceeded to examine the merits of a
complaint by workers of the Fertilizer Corporation that certain machinery said
to be surplus and obsolete was being sold for a song. It has been held in National Textiles Worker's Union v. P.R.
Ramakrishnana, AIR 1983 SC 75, that in winding up proceedings, the
workers have a right to be heard and they must be held to have the necessary
locus standi to maintain a writ petition designed to protect their interest. In Gujarat Steel Tubes Ltd. v. Gujarat Steel
Tubes Mazdoor Sabha, AIR 1980 SC 1896, it has been held
that workers are equal partners in an enterprise. It must, therefore, be held
that workers and employees of a public sector concern are vitally interested in
the matter and that, in any event, when such an important matter is brought to
the notice of this Court, it is entitled to examine the same with a view to
safeguard public interest. Judiciary is also an organ of the State and is as
much committed to public weal as any other wing of the State.
27. Once a decision
to privatise was taken, and before any offers were invited, one would have
expected the Government to have ordered a thorough valuation of the assets and
liabilities of the Corporation to find out what it is worth. Any reasonable and
prudent owner of property would do this before he puts his property for sale.
He would first assess for himself the value of the property he is selling,
since that alone would enable him to judge the offers received unless, of
course, it is a distress sale. The same ought to have been done by the State
Government both as a prudent owner and also because it is in the nature of a
trustee of the public property. It is, however, surprising to note that no such
effort was made. The first move towards privatisation was made by the
Government by its letter dated 16-4-1990 addressed to IDBI seeking its guidance
about privatisation and requesting them to send a nominee to finalise the
details of the proposal. No follow-up action was taken. Then followed the
advertisement in the newspaper 'Economic Times' on 1-5-1990. 25 persons
responded and there was a preliminary meeting on 15-5-1990. Even then, no
attempt was made to value the net worth of the Corporation. What is significant
in this connection is that in the very first meeting of the PC held on
11-9-1990, one of the members Sri A. K. Puri suggested that before taking any
step in this behalf, it is essential to determine the present value of these
units. He suggested that valuation of these units should be undertaken without
any delay. He also suggested the names of five agencies, including A.F.
Ferguson & Co., New Delhi and Price
Waterhouse Associates, New Delhi,
for this purpose. The Committee agreed with this suggestion and constituted a
sub-committee comprising five members to select valuers for the purpose and
have these units valued. It appears rather inexplicable that no steps
whatsoever were taken to have the assets of the Corporation valued through any
of those five agencies, nor through any other agency. What happened is that
during this course of negotiations with ACC, they suggested on 13-9-1990 that
report of a chartered accountant be obtained to determine the present value of
the shares of the Corporation and also to have a physical verification of its
assets. The ACC also indicated their choice of the chartered accountant,
namely, Billimoria & Co., Accordingly, the said firm of chartered
accountants was asked to value the shares. They valued the shares at Rs. 20/-
per share. They did not undertake valuation of assets. A good amount of
criticism has been levelled against the basis adopted by the said firm for
valuing the shares, and the manner in which they went about their job. It is
really unnecessary to dilate upon the correctness of their report, because no
one appears to have attached any value to it. The Dalmia Industries offered to
purchase 51 per cent shares of the Corporation at Rs. 45/- per share, with- out
asking for any kind of concession, facility or accommodation. This shows that
the valuation made by the Billimoria & Co. was wide off the mark. In this
context, it would be appropriate to refer to the pleadings of the parties.
According to the petitioners, the value of the assets of the Corporation is
more than Rupees 700 crores. In the counter-affidavit filed by the Government
this figure has been disputed as exaggerated and incorrect, but the Government
has made no effort to give its own figure. Evidently, it could not, in the
absence of any valutailon by a competent agency. The fact remains that the
Corporation owns 13.5 Sq. kms. of land wherein are situated factories and other
allied buildings, six residential colonies comprising five thousand dwelling
units, six recognised educational institutions, besides limestone mines and a
building called 'cement Bhawan' at Lucknow. There is a subsisting contract for
supply of slag with Bokaro Steels, where-under, according to the petitioners,
the Corporation gets slag at 1/3rd of the market rate. The above particulars
relating to the assets of the Corporation are not denied in the
counter-affidavit. It may be remembered that the paid up capital of the
Corporation is about Rupees 64 crores. As against this, the Corporation has run
up an accumulated loss of about Rupees 180 crores. About Rupees 100 crores is due
to the Financial Agencies and about 10 and odd crores to the State Government.
In the above circumstances, it cannot be said that the liabilities of the
Corporation are almost equal to its assets. It is well known that value of land
and buildings has been appreciating over the last several decades. Even
allowing for depreciation their value should be substantial. Evidently, it was
for this reason that the Dalmias offered to purchase the shares at Rs.45/-
each, even without asking for any type of concession, facility or
accommodation, and ultimately, they agreed to pay Rs. 75/- per share, subject
to the Government granting concessions, facilities and accommodations mentioned
in the MOU and the GOS. We are told that a formal agreement has also been
entered into between the Government and the Dalmia Industries, but a copy of
the agreement has not been made available to us. (We presume that the agreement
is in ihe same terms as the MOU and GOS aforesaid mentioned).
28. Two questions
have to be answered; What is it, the Dalmia Industries have got under the deal,
and what is it, they have paid? We know what they have paid. According to the
MOU, the total amount payable by them for 51 per cent of the shares at Rs. 75/-
per share is a little above 26 crores. Of this amount, they paid one crore at
the time of signing the agreement. Two crores they agreed to pay within three
months of the signing of the agreement. (We are told at the time of the hearing
of the petitions that this amount has been paid). Another two crores they have
agreed to pay within six months of the signing of the agreement. The balance
amount of about Rupees 21 crores is payable within 24 months of the date of the
MOU. It, no doubt, carries interest at 12% per annum, but this amount when paid
to Government, has to be re-invested by the Government, as secured loan or
against secured debentures, in the Corporation. These loans are to carry
interest at 12% and are redeemable after five years in four equal instalments.
Certain units controlled by the Dalmia Industries were to furnish a corporate
guarantee for this balance amount. Under clause 9 of the MOU, it was. agreed
that all the employees of the Corporation will be taken over on 'as is where
is' basis, which means that they will be continued on the same basis. As
against four directors of the Government, the Dalmias are to have five
directors. Managing Director is to be appointed out of the five directors
nominated by the Dalmias. The State Government clearly declared that they will
not give any guarantee for funds to be raised in future by the Corporation. As
against this, the following concessions were extended by the State Government.
For a period of five years, the Corporation was exempt from payment of Sales
Tax. The amount collected by it on account of Sales Tax during this period has
to be paid in the five equal annual instalments. Payment of these instalments
is to begin after the expiry of eight years. The debts due to the State
Government and its agencies to the extent of Rupees 25 crores were
re-scheduled. There was to be a moratorium for a period of three years,
whereafter the said-debts were to be repaid in five equal instalments. These
debts were to carry interest at 12% with rebate of 3% for timely and prompt
payment. Besides this, contingent liabilities of Rs. 1.4 crores to the Sales
Tax Department and 11 lakhs towards stamp duty were to be waived. Further,
Sales Tax Department was to be requested by the State Government to drop all
its cases -- a very significant and pregnant concession. The last clause of the
MOU provided that the memo of articles of association of the Corporation will
be suitably amended to reflect the changed version of the Company and other
changes envisaged in the Board etc. Mr. S.P. Gupta contends that 51 percent of
ownership of the Corporation was made over to Dalmia Industries on a mere
payment of rupees one crore. In any event, the real cash payment, he says, is
only rupees five crores. The rest is, no doubt, payable within two years, but
when paid, it has to be reinvested by the Slate Government in the very same
Corporation, which again is repayable after a period of five years in four
equal instalments which means that the payment will really begin after seven
years. His argument, therefore, is that assets worth rupees 700 corres were
made over for a mere pittance. The State Government, no doubt, denies this
imputation vehemently, but strangely, as it may seem, they have not given their
valuation of the net worth of the Corporation. As we have pointed out hereinbefore,
since they have made no attempt to have the net worth of the Corporation valued
by any competent agency, they could not also have stated the same clearly. It
is not as if they were not aware of this requirement. We may repeat that in the
very first meeting of the PC, one of its members opined that it was essential
to value the assets of these units before any step is taken towards their
privatisation. He also suggested agencies competent to do the job. Other
members of the Committee agreed with his suggestion and a sub-committee was
also constituted to select the agency and have the valuation done, but no such
valuation was done. Instead, Billimoria & Co. was asked to do it and they
made a mere superficial job. As we have said above, no one has taken the said
valuation seriously.
29. When a
factory/industry/company is acquired by Government, they do not merely pay the
prevailing value of the shares (in a case where shares of such company are
quoted on Stock Exchange), such values are determined by a Complex array of
consideration. The normal method of determining the compensation in such cases
is to value the assets, determine the liabilities and find out its net
worth-unless, of course, the compensation is fixed by the enactment itself. In
this connection, it would be relevant to notice certain observations made by
the Supreme Court in R.C. Cooper v. Union of
India, AIR 1970 SC 564 at pp. 609 to 611 :
"
The important methods
of determination of compensation are -- (1) market value determined from sales
of comparable properties, proximate in time to the date of acquisition,
similarly situate, and possessing the same or similar advantages and subject to
the same or similar disadvantages. Market value is the price the property may
fetch in the open market if sold by a willing seller unaffeted by the special
needs of a particular purchase; (ii) capitalization of the net annual profit
out of the property at a rate equal in normal cases to the return from gilt-edged
securities. Ordinarily in value of the property may be determined by
capitalizing the net annual value obtainable in the market at the date of the
notice of acquisition, (iii) where the property is a house, expenditure likely
to be incurred for constructing a similar house, and reduced by the
depreciation for the number of years since it was constructed; (iv) principle
of reinstatement, where it is satisfactorily established that re-instatement in
some other place is bona fide intended, there being no general market for the
property for the purpose for which it is devoted (the purpose being a public
purpose) and would have continued to be devoted, but for compulsory
acquisition. Here compensation will be assessed on the basis of reasonable cost
of re-instatement; (v) when the property has outgrown its utility and it is
reasonably incapable of economic use, it may be valued as land plus the break
up value of the structure. But the fact that the acquirer does not intend to
use the property for which it is used at the time of acquisition and desires to
demolish it or use it for other purpose is irrelevant; and (vi) the property to
be acquired has ordinarily to be valued as unit. Normally an aggregate of the
value of different components will not be the value of the unit.
These are, however,
not the only methods. The method of determining the value of the property by
the application of an appropriate multiplier to the net annual income or profit
is a satisfactory method of valuation of lands with buildings, only if the land
is fully developed, i.e., it has been put to full use legally permissible and
economically justifiable, and the income out of the property in the normal
commercial and not a controlled return or a return depreciated on account of
special circumstances. If the property is not fully developed, or the return is
not commercial the method may yield a misleading result.
.....
Compensation to be
determined under the Act is for acquisition of the undertaking, but the Act
instead of providing for valuing the entire undertaking as a unit provides for
determining the value of some only of the components, which constitute the
undertaking, and reduced by the liabilities. It also provides different methods
of determining compensation in respect of each such component. This method of
determinatin of compensation is prima facie not a method relevant to the
determination of compensation for acquisition of the undertaking. Aggregate of
the value of components is not necessarily the value of the entirety of a unit
of property acquired, especially when the property acquired is a going concern,
with an organized business. On that ground alone, acquisition of the
undertaking is liable to be declared invalid, for it impairs the Constitutional
guarantee for payment of compensation for acquisition of property by law. Even
if it be assumed that the aggregate value of the different components will be
equal to the value of the undertaking of the named bank as a going concern the
principles specified in our judgment, do not give a true recompense to the
banks for the loss of the undertaking..... It appears clear that in determining
the compensation for undertaking-- (i) certain important classes of assets are
omitted from the heads (a) to (h); (ii) the method specified for valuation of
lands and buildings is not relevant to determination of compensation, and the
value determined thereby in certain circumstances is illusory as compensation;
and (iii) the principle for determination of the aggregate value of liabilities
is also irrelevant.
.....
The value determined
by excluding important components of the undertaking, such as the good will and
value of the unexpired period of leases, will not, in our judgment, be
compensation for the undertaking."
30. It cannot be
denied that by selling 51 per cent share holding in the Corporation, the
Government has in truth transferred 51 per cent of its ownership. Before
determining the price, at which the shares were to be sold, the Government
ought to have, as a reasonable and prudent owner, and more so because it is in
the nature of a trustee vis-a-vis public property, got a thorough valuation
done of the assets and liabilities to find out the net worth of the
Corporation. It would then have known what it was selling and would have been
in a better position to determine which offer to accept and at what figure.
Without such a valuation, the determination of rate of shares for the purpose
of the sale was without any basis. We are left wondering whether any of the
persons responsible for the deal would have acted in the same fashion, if they
had been selling 51 per cent shares in a company owned by them.
31. Now, corning to
the two questions raised by us a little while ago, we do not know the net worth
of the assets of the Corporation and, therefore, we cannot say what did the
Dalmia Industries get in the shape of 51 per cent of the shares of the
Corporation. In the face of a mere general denial in the counter-affidavit,
without giving any valuation of their own, we would well have been justified in
holding that the figures mentioned by the petitioners are correct, which would
mean that the assessets are valued at more than rupees 700 crores, while the
liabilities are in the region of rupees 200 crores. In that event, net worth
would not be less than 500 crores, 51 per cent whereof would be worth more than
rupees 250 crores, which is being sold for rupees 26 crores, and even that
accompanied by so many concessions and accommodations. But, we are of the
considered opinion that adopting such a course would not be just and proper
one, in all the circumstances of the case. The deal has gone through and the
subject-matter of the deal is of a very high value. Though we are not satisfied
with the manner in which the Government and its agencies have proceeded in the
matter, we are of the opinion that before we can pass any final orders in the
writ petitions, we should have the net worth of the Corporation valued, at
least now, through a reputed and well-known agency. For this purpose, we fall
back upon the very same material as is disclosed in the minutes of the first
meeting of the PC. Five agencies were mentioned, who, according to Sri A.K.
Puri, were competent to value the assets and liabilities of the Corporation to
find out its net worth. Accordingly, we appoint two agencies, namely, A. F.
Foreguson & Co., New Delhi and Price
Water-house Associates, New Delhi,
and request them to independently value the assets and liabilities of the
UPSCCL and to determine the net worth of the Corporation as on 1-2-1991. Both
the agencies shall independently do their job and submit their reports
separately. The reports shall be submitted within two months of service of a
copy of this order upon them. The Government, the Corporation, the 5th
respondent and the petitioners shall furnish all assistance to the said
agencies in doing and completing their job. The expenses of the said exercise
by both the agencies shall be borne by the State Government. For this purpose,
the State Government is directed to deposit a sum of rupees three lakhs into
the Court within ten days from today. Of this amount, a sum of rupees Fifty
thousand shall be paid to each of the said firms as initial payment. The total
fees payable to each of the agencies will be determined by this Court later in
consultation with them.
Post these matters
after the receipt of the reports of the said two firms.
32. Order
accordingly.
22/7/1991
2
HIGH
COURT OF JUDICATURE OF ALLAHABAD
In chamber
MISC.
COMPANY APPLICATION NO. 4 OF 1997
In the matter of
U.P.
State Cement Corporation Ltd. ( In Liq.)
Hon'ble Sunil Ambwani, J.
1. Present Shri
Ashok Mehta for Official Liquidator; Shri S.K. Saxena, Official Liquidator;
Shri W.H. Khan for U.P. Power Corporation; Shri M.S. Pipersania &
Shri Anil Mehrotra for State; Shri Navin Sinha, Senior Advocate for JAL; Shri
R.P. Singh, District Magistrate, Sonbhadra; Shri V.K. Singh, Chief Judicial
Magistrate, Sonbhadra; Shri Haider Beg; Shri Arvind Kumar Dubey, Central Nazir,
Judgeship at Sonbhadra; Shri J. Nagar for LIC; Shri Harendra Pandey; and
Shri A.K. Upadhyay.
2. Shri W.H. Khan,
appearing for U.P. Power Corporation, has pressed for settlement of the claims
of the Corporation. The dues of the U.P. Power Corporation have been considered
by the Settlement Claims Committee in its report forwarded by the Official
Liquidator. Shri W.H. Khan may inspect the report. The Corporation will be
individually communicated with the adjudication of the claims and may raise
their objections by 3rd January, 2007.
Possession of the Assets of the Company (In
Liq.)
3. Shri Navin
Sinha informs that in pursuance of the orders of the Court, the demarcation
process of Kajrahat mines of Block I to IV is in process; in Ghurma the
demarcation is complete; in Ningha the demarcation process has not started as
yet and the demarcation process of Dolomite mines of Bari and Sinduria has not begun as yet.
4. Let the
District Magistrate demarcate the limestone and dolomite mines. After
demarcation, he will hand over possession of Kajrahat mines (except Block Nos.
V to VII) and other limestone mines of Ningha & Ghurma to JAL. He
will also hand over possession of dolomite mines of Bari and Sinduria. The handing over
possessions will not entitle JAL of mining operations until all legal
requirements are complete. The mining operations shall be carried out only
after complying with all formalities in accordance with the law.
5. Shri R.P.
Singh, District Magistrate, Sonbhadra states that it may take some time to
vacate the houses in possession of state officers, occupied by the District
officers including the houses in possession of Police and Judiciary and Power
Corporation. Earlier he had requested for time upto 31.3.2007 for houses in
possession of the officers working under him. The Superintendent of Police had
expressed his inability to vacate as there is no alternative arrangement.
So far as the employees of U.P. Power Corporation are concerned, the possession
shall be handed over as soon as the JAL is ready to take over the
responsibility of sub stations. For this purpose, let the District Magistrate;
Superintendent of Police; District Judge and Executive Engineer of the U.P.
Power Corporation hold meetings and settle with JAL the effective date,
on which the possession may be handed over. In case of any disagreement they may
approach the Court.
Shops.
6. The Official
Liquidator states that he has handed over 8 shops at Chunar and is ready to
hand over the vacant and abandoned shops. Let the vacant and abandoned shops be
handed over immediately. It will be open to those shop keepers, who have
deposited dues and electricity charges with the Official Liquidator to
negotiate with the JAL for fresh terms of tenancy.
Plant and machinery
7. The Official
Liquidator informs that the possession of plant and machinery at Dalla and
Chunar has been handed over to JAL. He has offered to hand over the possession
of plant and machinery at Churk. The JAL has expressed its willingness to take
over possession. Let it be handed over within a week.
8. Shri Navin
Sinha informs that the demarcation of free hold lands is complete. The
encroachments, however, have not been removed. The District Magistrate may take
effective steps with the help of police to remove unauthorized occupants to
hand over possession to JAL.
9. It is reported
by JAL that there is shortage of land in some areas. Let these shortages be
re-assessed and sorted out with the Official Liquidator. The possession of raw
material/current fiscal assets shall also be handed over. The Official
Liquidator will also issue letter of authority to JAL to receive the bonus
shares of U.P. Asbestos Limited.
10. The Court has
already issued directions to the Official Liquidator to prepare 100 copies of
the report of the settlement claims committee. He states that these copies have
been circulated at Churk; Dalla; Ghurma and Chunar. The objections to the
settlement of claims be categorized; compiled and submitted to the Court on
3.1.2007. The matter will be listed in Court on 3.1.2007 to be taken over at
10.00 AM. The hearing on objections will begin on that date.
11 placed by way
of the affidavit of the Secretary concerned by 3.1.2007. . Shri Anil Mehrotra,
appearing for the State Government, has made some objections with regard to
handing over possession of the mines and mining operations. He had made similar
objections earlier also. The court cannot allow the oral objections to be made
in the proceedings by any party. In case the State Government has any
objection, let these be
12. List on 20.12.2006
Dt.13.12.2006
3
Cement Workers Union And Ors. vs Board For Industrial And Financial Reconstruction
And Ors. on 8/12/1999
2000 100 CompCas 76 All, (2000) 1 UPLBEC 392
JUDGMENT
Sudhir Narain, J.
1. The petitioners
seek a writ of certiorari quashing the order of the Board for Industrial and
Financial Reconstruction (hereinafter referred to as "the Board")
recommending to this court for winding up of U. P. State Cement Corporation
Ltd. (hereinafter referred to as "the Corporation"), by its order dated
July 2, 1997, and the orders of the Appellate Authority dated February 19,
1998, dismissing the appeal against the said order. The petitioners have
further sought mandamus against the State of Uttar Pradesh to contribute the required
funds for the revival of the Corporation and make payment of all the dues to
the employees of the Corporation and to provide alternative employment to them
in case the recommendation of the Board is accepted by this court.
2. The facts, in
brief, are that the Corporation was originally functioning as an undertaking of
the U. P. Government. It was converted into a public limited company in the
year 1972. It is manufacturing cement. It has three units. The first unit was
set up in the year 1954, at Churk. In 1972, another unit was set up at Dalla
with an installed capacity of 4 lakhs t.p.a. Both these units manufacture
cement under wet processing technology. In the year 1974, the IDBI along with
other financial institutions and banks sanctioned financial assistance to the
Corporation to set up a dry process cement plant with clinkerisation unit at
Dalla of capacity of 8 lakhs t.p.a. and cement grinding unit at Chunar for
manufacture of Portland Blast Furnace Slag Cement of 16.8 lakhs t.p.a.
3. The Corporation
went on accumulating losses. In September 1991, the loss amounted to Rs. 180,13
crores while its paid up capital was Rs. 68.28 crores. On March 31, 1994, the
loss was Rs. 319.81 crores and share capital and reserves were Rs. 68.29
crores. On March 31, 1998, the loss further increased to Rs. 548.85 crores.
4. The board of
directors of the Corporation found that the accumulated losses were exceeding
the entire net worth of the Corporation and it has become a sick industrial
company. They, after finalisation of the duly audited accounts of the company
for the financial year, made a reference to the Board on March 28, 1992, under
Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985
(in short "the Act"), for determination of the measures which shall
be adopted with respect to the sick company.
5. The Board on
receiving the reference submitted by the board of direc tors of the Corporation
considered it in its first meeting held on October 7, 1992, in which it
declared the Corporation as a "sick industrial company" and appointed
the Industrial Development Bank of India (in "short IDBI") as the
operating agency as provided under Section 16 of the Act. The operating agency
was directed to prepare and present a suitable scheme within 90 days with a
further direction that it shall identify the surplus assets and arrange for
their disposal. The Board held ten meetings to explore the possibility of
revival of the company. In short the summary to the meetings is given as under
:
7-10-1992--The Board
declared the company as a sick industrial company. The Industrial Development
Bank of India (IDBI) was directed to prepare and present a suitable scheme
within 90 days. It was further directed to identify the surplus assets and
arrange for their disposal for generating interest free funds. The promoters
were also directed to submit their proposal to the operating agency.
24-12-1993.--The
operating agency did not submit any scheme. It again directed the operating
agency to present a scheme within the extended period of three months. The
Board further asked the State Government to indicate its policy regarding
rehabilitation.
5-12-1994.--The Board
further allowed another six weeks time to present the scheme. The workers
representative submitted that they were not ready to run the company through workers
co-operative as they have no funds for the purpose.
28-12-1994--The
operating agency presented a scheme involving expenditure of Rs. 122.23 crores
to be met by the State Government. It was based on techno viability report of
Cemtech India.
As on March 31, 1994, the accumulated losses of the Corporation were Rs. 319.81
crores whereas the share capital and reserve were Rs. 68.29 crores. The Board
directed the Corporation to submit an alternative proposal. In the meantime the
operating agency was again directed to examine the possibility of mobilising
resources by sale of surplus assets and was further advised to advertise
inviting offers from private parties for rehabilitation of the Corporation.
18-5-1995.--The
operating agency reported to the Board that in response to the advertisement
made by it, four proposals were received-two from workers and two from
outsiders. The State Government informed the Board that it was not possible by
it to invest any funds and privatisation or joint sector was the only solution.
The operating agency was asked to examine the four proposals received.
18-10-1995.--The
operating agency informed the Board that the two outsiders who had submitted
offers were not interested. Workers proposals were also not found acceptable.
The Board gave a last opportunity to the State Government to locate some party
to take over the Corporation. The operating agency was asked to make fresh
advertisement for the purpose.
4-1-1996.--The
operating agency reported to the Board that no concrete proposals were received
by it in response to the fresh advertisement. The State Government (promoter)
did not show any interest and no one attended the meeting. The Board gave
further time to earlier two bidders to submit comprehensive proposals. It
directed the Corporation to submit comprehensive proposals to one of the two
outsiders (HBG was also directed to submit comprehensive proposal). The Board
made it clear that if no proposal was received, a show-cause notice for winding
up would be issued.
26-9-1996.--The
Corporation submitted two alternative proposals--one involving1 investment of
Rs. 444 crores (of which the State Government, the promoter was to contribute
Rs. 101 crores) and the other involving investment of Rs. 228 crores (of which
the promoter to contribute Rs. 189 crores). The State Government informed that
in view of elections it does not have any brief regarding infusion of funds.
The Board asked the State Government to convey its final views about the
proposal submitted by the Corporation within six weeks.
18-11-1996.--The
Board issued a show-cause notice why the Corporation be not wound up as the
State Government did not express its opinion with regard to investment of funds
for revival of the Corporation.
6-2-1997.--The Board
gave a last opportunity to the Corporation, workers and the State Government to
submit proposals with the means of finance fully tied up within two months.
2-7-1997.--The
Corporation submitted fresh proposals but there was no response from the State
Government. The Board came to the conclusion that it was not possible to revive
the Corporation and, therefore, it should be wound up and accordingly submitted
its opinion to this court for winding up of the Corporation.
6. Against the
opinion of the Board three appeals were filed. Appeal No. 168 of 1997 was filed
by the petitioners, Appeal No. 169 of 1997 by the Corporation and Appeal No. 8
of 1998, by the State Government. The appeal filed by the State of Uttar Pradesh was
dismissed in default on February 17, 1998. The appeals filed by the petitioners
and the Corporation were dismissed by a common order by the Appellate Authority
on February 19, 1998.
7. It has to be
examined as to whether the Board performed its duty under the provisions of the
Act in making efforts to revive the Corporation which was declared as sick
company. The object of the Act is to detect the sick companies and thereafter
to provide measures by a body of experts to revive such companies. It is to
help the sick industrial companies to revive them. The Statement of Objects and
Reasons of the Act is as under (page 303 of 58 Comp Cas (St.)):
"The ill effects
of sickness in industrial companies such as loss of production, loss of
employment, loss of revenue to the Central and State Governments and locking up
of investable funds of banks and financial institutions are of serious concern
to the Government and the society at large. The concern of the Government is
accentuated by the alarming increase in the incidence of sickness in industrial
companies. It has been recognised that in order to fully utilise the productive
industrial assets, afford maximum protection of employment and optimise the use
of the funds of the banks and financial institutions, it would be imperative to
revive and rehabilitate the potentially viable sick industrial companies as
quickly as possible. It would also be equally imperative to salvage the
productive assets and realise the amounts due to the banks and financial
institutions, to the extent possible, from the non-viable sick industrial
companies through liquidation of those companies.
It has been the
experience that the existing institutional arrangements and procedures for
revival and rehabilitation of potentially viable sick industrial companies are
both inadequate and time-consuming. A multiplicity of laws and agencies makes
the adoption of a co-ordinated approach for dealing with sick industrial
companies difficult. A need has, therefore, been felt to enact in public
interest a legislation to provide for timely detection of sickness in
industrial companies and for expeditious determination by a body of experts of
the preventive, ameliorative, remedial and other measures that would need to be
adopted with respect to such companies and for enforcement of the measures
considered appropriate with utmost practicable despatch."
8. The Board has been
entrusted with various duties under the various provisions under Chapter III of
the Act. Section 15 casts a duty upon the board of directors of the sick
industrial companies to make reference to the Board for determination of the
measures which shall be adopted with respect to the company within 60 days from
the date of finalisation of the duly audited accounts of the company for the
financial year. The Board is to make inquiry under Section 16 of the Act
determining whether any industrial company has become sick industrial company
and may require an operating agency to enquire into and make a report with
respect to such matters as may be specified in the order by the Board. The
Board can make suitable orders on completion of the inquiry under Section 16 of
the Act and shall decide whether it is practicable for the company to make its
net worth exceed the accumulated losses within a reasonable time. Under
Sub-section (3) of Section 17 of the Act, it may direct any operating agency to
prepare, having regard to such guidelines as may be specified in the order, a
scheme providing for such measures in relation to a sick company for its
revival. On preparation of the scheme it may sanction such scheme under Section
18(4) of the Act. Where the Board, after making inquiry under Section 16 and
after considering all the relevant facts and circumstances and after giving an
opportunity of being heard to all concerned parties, is of the opinion that the
sick industrial company is not likely to make its net worth exceed the
accumulated losses within a reasonable time while meeting all its financial
obligations and that the company as a result thereof is not likely to become
viable in future and that it is just and equitable that the company should be
wound up, the Board may record and forward its opinion to the concerned High
Court under Section 20(1) of the Act.
9. The Board
appointed Industrial Bank of India (IDBI) as the operating agency. It gave
directions to it in its various meetings held on several dates to take measures
for revival of the Corporation. The operating agency issued advertisement
inviting proposals for revival of the sick company. It presented a scheme on
the basis of the report of Cemtech India involving an expenditure of
Rs. 122.23 crores to be met by the State Government. The State Government in
the meeting of the Board held on May 18, 1995, informed that it was not
possible for the State Government to invest any funds. There were other four proposals
which were also considered by the Board.
(1) Gujarat Ambuja
Cements Ltd. : After submitting proposals it informed that it is not interested
to take over.
(2) Dalmia Industries
Ltd. : It sought one month's time for submitting a detailed proposal but
finally it did not submit any proposal.
(3) Khandelwal Cement
Ltd. (KCL) : They sought waiver of entire interest on term loans of financial
institutions and banks which were not acceptable to them. It did not submit any
further proposal.
(4) H. B. Group : It
submitted a proposal after depositing Rs. 5 crores which was not a detailed
proposal. The representative of H. B. Group submitted that in case no term loan
is available from IDBI they were not interested in rehabilitation of the
company. The proposal was thereafter dropped.
10. On behalf of the
workers union, Dalla Shramik Sangathan and U. P. State Cement Corporation
Workers Industrial Co-operative Society a proposal was submitted envisaging a
total cost of Rs. 984 crores over a period of 12 years to be met by internal
generation of Rs. 900 crores and untied loans of Rs. 84 crores. The operating
agency examined both these proposals and they were not found viable. One Hari
Sankar Roy representing Rajkiya Cement Mazdoor Sabha submitted before the Board
in its meeting held on September 26, 1996, that they have not submitted any
rehabilitation proposal but have indicated some modifications that need to be
made in the proposal of the Corporation.
11. The Board asked
the Corporation to submit its proposal to the operating agency. The operating
agency submitted a report dated September 11, 1996, intimating that the
Corporation had submitted a proposal on May 31, 1996, envisaging total
expenditure of Rs. 144 crores in one scheme and Rs. 228 crores in the other alternative
scheme. The cost of the scheme was proposed to be met, besides other sources,
by promoters' contribution of Rs. 101 crores in the first scheme and Rs. 189
crores in the second alternative. The State Government (promoter) never
committed to infuse its funds in the Corporation for its revival, the
rehabilitation proposal could not be given effect to.
12. 'S. P. Gupta,
learned senior advocate appearing for the petitioners vehemently urged that the
Board failed to consider various aspects for revival of the Corporation and
this has vitiated its opinion while recommending to this court for its winding
up.
13. It is submitted
that the State Government having not expressed any opinion in regard to the
scheme submitted by the Corporation, it will be deemed that the consent was
given as provided under Section 19(2) of the Act. Sub-section (2) of Section 19
provides that every scheme referred to in Sub-section (1) shall be circulated
to every person required by the scheme to provide financial assistance for his
consent within a period of 60 days from the date of such circulation or within
such further period not exceeding 60 days as may be allowed by the Board, and
if no consent is received within such period, it shall be deemed that the
consent has been given. Sub-section (2) must be read with Sub-section (1) which
provides for a scheme. It reads as under :
"19.
Rehabilitation by giving financial assistance.--(1) Where the scheme relates to
preventive, ameliorative, remedial and other measures with respect to any sick
industrial company, the scheme may provide for financial assistance by way of
loans, advances or guarantees or reliefs or concessions or sacrifices from the
Central Government, a State Government, any scheduled bank or other bank, a
public financial institution or State level institution or any institution or
other authority (any Government, bank, institution or other authority required
by a scheme to provide for such financial assistance being hereafter in this
section referred to as the person required by the scheme to provide financial
assistance) to the sick industrial company.
(2) Every scheme
referred to in Sub-section (1) shall be circulated to every person required by
the scheme to provide financial assistance for his consent within a period of
sixty days from the date of such circulation (or within such further period,
not exceeding sixty days, as may be allowed by the Board, and if no consent is
received within such period or further period, it shall be deemed that consent
has been given.)"
14. Sub-section (2)
of Section 19 of the Act is a deeming clause. In Consolidated Coffee Ltd. v. Coffee Board, AIR 1980 SC 1468 ; 46 STC 164 (SC) while considering the deeming provisions
in Section 5(3) of the Central Sales Tax Act, the Supreme Court held that in
modern legislation the word "deemed" is used in different senses and
it is not that a deeming provision is every time made for the purpose of
creating a fiction. It was observed (page 1479):
"Secondly, the
word 'deemed' is used a great deal in modern legislation in different senses
and it is not that a deeming provision is every time made for the purpose of
creating a fiction. A deeming provision might be made to include what is
obvious or what is uncertain or to impose for the purpose of a statute an
artificial construction of a word or phrase that would not otherwise prevail,
but in each case it would be a question as to with what object the Legislature
has made such a deeming provision. In St. Aubyn v. Attorney-General [1952] AC
15 at page 53 Lord Radcliffe observed thus :
The word
"deemed" is used a great deal in modern legislation. Sometimes it is
used to impose for the purposes of a statute an artificial construction of a
word or phrase that would not otherwise prevail. Sometimes it is used to put
beyond doubt a particular construction that might otherwise be uncertain.
Sometimes it is used to give a comprehensive description that includes what is
obvious, what is uncertain and what is, in the ordinary sense, impossible.'
"
15. The observation
of Lord Radcliffe in St. Aubyn v. Attorney-General [1952] AC 15 was quoted to
find out as to for what purpose the legislation introduced the deeming clause.
The different meanings of the word "deemed" have to be applied in the
context of the legislative purpose and on the facts of each case.
16. Legal fiction has
been created under Section 19(2) of the Act in regard to financial assistance
by the person concerned to give an authority to the Board to proceed with the
proposed rehabilitation scheme expeditiously. This legal fiction, however, will
no longer survive, if an intention can be ascertained from the conduct of the
parties against whom fiction has been created that he does not consent to the
proposed scheme. The Board is not precluded from examining the reality after
the veil of legal fiction is removed. It is necessary to examine the facts in
this light. The operating agency on the basis of the report of Cemtech India presented
a scheme on December 28, 1994, before the Board involving expenditure of Rs.
122.23 crores to be met by the State Government. The Board in its meeting held
on May 18, 1995, observed as follows :
"The Bench
further noted that a communication has been received from the State Government
stating that keeping in view the magnitude of funds required for rehabilitation
of the company as assessed by Cemtech and IDBI as operating agency,
privatization including outright sale of the company switch over to the joint
sector is the only feasible option for rehabilitating the company ; and that
the State Government would not invest any money on its rehabilitation.
The State Government
has clearly stated that they will not be able to induct any funds for the
rehabilitation of the company and is in favour of the privatization. The long
term liabilities of the company as on March 31, 1994, were Rs. 209 crores,
comprising term loans from the institutions/ banks Rs. 142 crores, debentures
Rs. 17 crores and unsecured loans from the State Government Rs. 40.04
crores."
17. It is in this
meeting dated May 18, 1995, the Board gave certain directions to the State
Government, Corporation and the operating agency. The offers made by other
companies and also the worker unions were considered and were not found feasible.
18. The Corporation
submitted two proposals before BIFR in its meeting held on September 26, 1996,
One proposal envisaged total expenditure of Rs. 144 crores and another Rs. 222
crores under two different alternative schemes. The cost of the scheme
envisaged contribution of Rs. 101 crores in the first alternative and Rs. 189
crores in the second alternative by the State Government. As the means of the
finance were not fully tied up, the opinion of the State Government was sought.
But it was noted that there was no response from the Government of Uttar
Pradesh in this regard. The Corporation submitted another scheme in March,
1997, wherein the project cost was shown at Rs. 54.25 crores. The State
Government again did not show its inclination to infuse the funds.
19. Once the State
Government had earlier made it clear that it is not going to infuse any funds
in the rehabilitation scheme and there was no material on the record to show
that the State Government had changed its opinion, the deeming clause contained
in Section 19(2) of the Act will not create a fiction. There were two aspects
in relation to revival of the Corporation--one to make up the losses already
incurred and, secondly, to invest the amount for modernisation of machinery,
etc. The Corporation was suffering heavy losses year after year and as on March
31, 1994, the loss was Rs. 319 crores whereas the share capital and reserves
were Rs. 68.29 crores. This loss further increased to Rs. 548.85 crores as on
March 31, 1998. The units at Churk and Dalla were by wet process. It was an old
process while according to modern technology the dry process was to be adopted
and to some extent it was done in the year 1975. The State Government had
earlier taken the stand that it will not infuse funds in the proposed scheme.
In the context of these circumstances it is difficult to hold that the State
Government shall be deemed to have consented to infusion of its funds for
revival of the Corporation.
20. The second
submission of learned counsel for the petitioner is that there were surplus
assets of the Corporation and if surplus assets had been identified and sold by
the operating agency, no additional fund was required to give effect to the
rehabilitation scheme for revival of the Corporation. The words "surplus
assets" have not been defined in the Act. In Strand's
Judicial Dictionary, fifth edition, page 2570, the meaning of "surplus
assets" has been given as under :
"(c) Surplus
assets.--In the memorandum and articles of a company, 'surplus assets' means
all the assets of the company remaining after creditors have been paid and the
costs of winding up have been paid or provided for, but before any payment to
members as such has been made or provided for. 'Any further surplus assets'
means that part of the 'surplus assets' remaining after paying or providing for
the members (Dimbula Valley (Ceylon) Tea Co. Ltd, v. Laurie [1961] 31 Comp Cas
655 ; [1961] 1 Ch. 353).
(d) Surplus
assets.--In the memorandum of association of a company, was held to mean what
was left after the payment of debts and the repayment of the whole of the
preference and ordinary capital (Dunstable Portland Cement Co., In re 48 TLR
223)."
21. Here in the
context of the Corporation which has been declared as sick company means the
assets which are extra and can be disposed of without affecting the functioning
of the Corporation in manufacturing cement and other functions which it carries
on.
22. The Board
directed the operating agency to identify the surplus assets and arrange for
their disposal. It had issued other directions to the operating agency and
these directions were as follows :
(a) Establishment of
technical, economic and financial viability of the unit on a long term basis ;
(b) Generation of
interest free funds ;
(c) Long term agreement
with the workers.
23. The Board in its
meeting dated December 24, 1993, observed "whether the assets would be
surplus can be decided only when the viability of each individual unit per se
is evaluated".
24. The petitioners
before the Board did not point out any surplus assets of the Corporation.
However, the surplus assets were shown in the report of Cemtech India, the
Corporation and Workers' Scheme. The figures as given are as follows :
(Rs. in crores)
(i) Report by Cemtech
India
7.07
(ii) The scheme
submitted by the Corporation in March, 1997
22
(iii) Workers' Scheme
35
25. In the writ
petition the petitioners took the stand that the surplus assets were not
identified by the operating agency and the Board having not taken this aspect
into consideration, its order was vitiated. This court on May 5, 1998, while
issuing notice to the respondents permitted the petitioners to file a
supplementary affidavit disclosing therein the list of surplus assets of the
Corporation, if any. In pursuance of this order the petitioner submitted a
report of S.N. Singh and Company, Chartered Accountants, dated July 21, 1998,
along with a supplementary affidavit. In this report the value of surplus
assets has been estimated at Rs. 151 crores on the basis of the sale of the
entire colony at Churk and Dalla. The relevant part of the report reads as
under :
Churk :
In the rehabilitation
package submitted by the union representatives it has been considered that the
entire colony of Churk and Ghurma will be handed over to the State Government
on the basis of market price.
This includes land,
buildings, electrification, water supply, sewerage and sanitation, telephone
facilities, etc., it has been proposed that the land pertaining to factory
premises should be retained by the Corporation. It has also been covered under
the rehabilitation package that the existing employees will be provided
residential facilities by the district administration on rental basis.
Dalla :
Dalla having surplus
land of approx. 100 acres which has been valued on the market price. The assets
of schools and colleges will be transferred to State Government based on the
market price. The shops and some other items will be disposed of at the market
value.
Chunar :
The hilly land
available at Chunar is surplus and may be disposed of at the market price. The
assets of schools and colleges will be transferred to State Government at the
market price.
The summary of the
revaluation of surplus assets of U.P. State Cement Corporation Ltd, along with
the relevant annexures is being enclosed herewith.
It may be seen that
the surplus assets of the corporation are for Rs. 151 crores.
26. A
counter-affidavit was filed by K.L. Meena wherein it has been specifically
stated that the surplus assets of the Corporation are not free from
encumbrances and all of its assets are mortgaged with the financial
institutions and banks including the Industrial Bank of India against
the loan taken by the Corporation in question. S. N. Singh and Company should
have taken note of this fact. Further the report discloses that the entire
colony of Churk and Ghurma will be handed over to the State Government on the
basis of the market price which shows that even those alleged surplus assets
have been based on complete financing by the State Government.
27. Singh, chartered
accountant, further submitted the value of the school buildings in respect of
Dalla, Chunar and Churk as surplus assets and took the view that the State
Government may take over such building and provide funds to the extent of valuation
of the school building. It has further valued the residential buildings at
Churk and has taken the figures from the report of the share valuation of
October, 1995, of A. F. Ferguson and Company, New Delhi, but has not taken into
consideration the life factor nor has valued the correct replacement cost after
depreciation which has been considered by A. F. Ferguson and Company. The
valuation has to be made taking into account (i) estimated total useful life of
the building, (ii) balance useful life on the basis of present condition of the
building and (iii) depreciation/adjustment for past uses but they have not been
taken into account. It is not denied that the property of the Corporation taken
as surplus assets for the purpose of sale either belong to the State Government
or it is hypothecated with the financial institutions and keeping in view this
fact such surplus assets will hardly be sufficient for revival of the company
taking into account the total cost of the scheme submitted by the Corporation.
28. The Corporation
had a submitted scheme in March, 1997, wherein the value of the surplus assets
was shown as Rs. 25 crores. The workers union had submitted the representation
to the Industries Minister, a copy of which has been annexed as annexure 20 to
the writ petition and while submitting the scheme in paragraph 7 it was stated
that Rs. 35 crores can be generated from internal sources. The petitioners
never indicated that the surplus assets were worth Rs. 150 crores. Cemtech India had
submitted a report and Corporation had also submitted a scheme in March, 1997,
wherein the estimate of the surplus assets was given. From the entire facts,
discussed above, it has not been shown that the surplus assets are such which
can generate the amount for rehabilitation of the sick Corporation.
29. The third ground
of attack against the opinion of the Board is that it failed to publish the
scheme submitted by the operating agency under Section 18(3)(a) of the Act
which provides that the scheme prepared by the operating agency shall be
examined by the Board and a copy of the scheme with modification, if any, made
by the Board, shall be sent, in draft, to the sick industrial company and the
operating agency and in the case of amalgamation also, to any other company concerned,
and the Board shall publish or cause to be published the draft scheme in brief
in such daily newspaper as the Board may consider necessary for suggestions and
objections, if any, within such period as the Board may specify.
30. Admittedly, the
Board appointed the Industrial Bank of India as operating agency and
directed it to prepare and present a suitable scheme. The operating agency
presented a scheme involving expenditure of Rs. 122.23 crores to be met by the
State Government. In its meetings held on December 28, 1994, the Board directed
the Corporation to submit an alternative proposal for its revival. The workers
were also permitted to submit their rehabilitation proposal. The operating
agency was directed on receipt of the proposal to examine it to find out
whether such schemes were viable with the means of finance tied up. In the next
meeting held on May 18, 1995, the State Government informed the Board that it
was not possible to invest any funds in the rehabilitation scheme. The
operating agency reported that in response to the advertisement released by it
four proposals were received--two from the workers and two from outsiders.
These proposals were also not found acceptable for the reasons that the funds
were not available for rehabilitation of scheme. The Board went on exploring
the possibility to find out a revival scheme with the means of finance fully
tied up. The scheme submitted by the operating agency was in these
circumstances, never published.
31. The contention of
the Corporation and the State Government is that unless the proposals submitted
by the operating agency with means of finance fully tied up, it could not be
taken as a draft scheme so as to compel the Board to get it published in the
daily newspaper as provided under Section 18(3)(a) of 1985 Act. It is contended
that if a scheme is submitted by the operating agency, it has to be first
examined by the Board and only thereafter the Board shall publish or cause to
be published and if in the examination of the scheme it finds that such scheme
is not with the means fully tied up, it cannot prepare a draft scheme so as to
send it for publication.
32. The draft scheme
is to be published only as provided under regulation 28 of the Board for
Industrial and Financial Reconstruction Regulations, 1987, which reads as under
:
"28. The Board,
after considering the scheme prepared by the operating agency and report
thereon, if any, of the secretary, submitted in pursuance of an order made by
the Board, on the point as to whether the scheme has been prepared in
accordance with the guidelines specified in the order of the Board made under
Sub-section (3) of Section 17, shall prepare a draft scheme and cause a copy of
the same to be sent to the sick industrial company and the operating agency :
Provided that in case
the said scheme envisages amalgamation of the sick industrial company with
another industrial company or vice-versa a copy thereof shall also be sent to
the transferee-company and any other company concerned in the amalgamation for suggestions
and objections if any. The suggestions and objections, if any, shall be
furnished to the Board within such time as may be specified by the Board :
Provided that the
Board may, at the request of the concerned party and on sufficient cause being shown,
suitably extend the time for submission of suggestions and objections."
33. There is nothing
to show that the draft scheme was prepared by the Board and in the absence of
such draft scheme, there was nothing to be published as envisaged under regulation
28 of the Regulations.
34. Where the Board
fails to prepare the draft scheme and get such scheme published in the daily
newspaper as contemplated under Section 18(3)(a) of the Act, it is still to be
examined that such failure has affected the prospect of the revival of the sick
company. In this context a reference may be made to Clause (b) of Section 18(3)
of the Act which provides that the Board may make such modifications, if any,
in the draft scheme as it may consider necessary in the light of suggestions
and objections received from the sick industrial company and the operating
agency and also from the transferee industrial company and any other company
concerned in the amalgamation and any shareholder or any creditors or employees
of such companies. Regulation 29 provides that the Board shall publish or cause
to be published short particulars concerning the draft scheme, by way of
notification, in such daily newspaper and periodicals as it may consider
necessary, inviting suggestion and objections regarding the draft scheme,
within such time as may be mentioned in the notification, from the
shareholders, creditors and employees of the sick industrial company the
transferee-company as well as any other company concerned in the amalgamation.
35. The scheme is
published with a view to invite objections from the (!) sick industrial company
(2) operating agency (3) the transferee-company concerned in case of
amalgamation and (4) from any shareholders, creditors or employees of the sick
industrial company. The Board had given full opportunity to the Corporation,
its workers and the operating agency. It is not their case that they have been
deprived of their right to file objections to the scheme submitted by the
operating agency. The workers were fully aware of the scheme and they were
given opportunity to submit alternative proposal. Similarly, the Corporation
was also given opportunity to submit alternative proposal. The scheme submitted
by the operating agency envisaged investment of funds by the State Government.
On behalf of the operating agency, V.M. Tawade, the General Manager of IDBI has
filed a counter-affidavit. It has been stated that after submission of the
scheme several objections were received from employees of the Corporation and
the bank also and in those circumstances, by invoking the provisions of Section
18(3)(b), the Board issued certain directions. Those directions, inter alia,
included the participation of petitioners, banks, and the Corporation in
formulating the scheme for the long-term revival of the Corporation. The
rehabilitation proposal when submitted was to be considered by the operating
agency for preparing a fresh scheme. In view of the fact that ample opportunity
was given to all concerned, the petitioners were not prejudiced by
non-publication of the scheme submitted by the operating agency.
36. Fourthly, the
petitioners have found fault in the steps taken by the Board in not passing a
specific order as required under Section 17(1) of the Act which provides that
if after making inquiry under Section 16, the Board is satisfied that a company
has become a sick industrial company, the Board shall, after considering the
relevant facts and circumstances of the case, decide as soon as may be, by
order in writing, whether it is practicable for the company to make its net
worth exceed the accumulated losses within a reasonable time. Sub-section (1)
is to be read with Sub-sections (2) and (3) of the Act as on the basis of the
order passed under Sub-section (1) the Board has to take further steps. The
relevant provisions of Section 17(1), (2) and (3) read as under :
"17. Powers of
Board to make suitable order on the completion of inquiry.--(1) If after making
an inquiry under Section 16, the Board is satisfied that a company has become a
sick industrial company, the Board shall, after considering all the relevant
facts and circumstances of the case, decide, as soon as may be by order in
writing, whether it is practicable for the company to make its net worth exceed
the accumulated losses within a reasonable time.
(2) If the Board
decides under Sub-section (1) that it is practicable for a sick industrial
company to make its net worth exceed the accumulated losses within a reasonable
time, the Board, shall, by order in writing and subject to such restrictions or
conditions as may be specified in the order, give such time to the company as
it may deem fit to make its net worth positive.
(3) If the Board
decides under Sub-section (1) that it is not practicable for a sick industrial
company to make its net worth exceed the accumulated losses within a reasonable
time and that it is necessary or expedient in the public interest to adopt all
or any of the measures specified in Section 18 in relation to the said company
it may, as soon as may be, by order in writing, direct any operating agency
specified in the order to prepare, having regard to such guidelines as may be
specified in the order, a scheme providing for such measures in relation to
such company."
37. On a reference
being made to the Board under Section 15 by an industrial company for
determination of the measures which shall be adopted with reference to the
company, the Board shall make an inquiry under Sub-section (1) of Section 16 of
the Act, whether such industrial company has become a sick industrial company.
It is only after it is satisfied that such company has become a sick industrial
company, that it shall decide by an order in writing whether it is practicable
for the company to make its net worth exceed its accumulated losses within a
reasonable time. If it is practicable for the sick industrial company to make
its net worth exceed its accumulated losses within a reasonable time, the Board
shall give such company time to make its net worth exceed its accumulated
losses and if it is not practicable for a sick industrial company to make its
net worth exceed its accumulated losses within a reasonable time, it shall
adopt the measures as provided under Section 18 of the Act. The order in
writing is to be passed under Sub-section (1) of Section 17 of the Act only for
the purpose to adopt either of the two courses for making the net worth exceed
the accumulated losses. The Board can pass an order in writing regarding the
capability of the sick industrial company to make its net worth exceed its
accumulated losses only when such company places material before the Board and
in the absence of any such material it has to pass an order as provided under
Sub-section (3) of Section 17 of the Act.
38. In the first
meeting held on October 7, 1992, the Board noted the statement of Usmani, the
Executive Director of the Corporation as under :
"Usmani
submitted that the unit had required potential and it could be revived with the
required assistance from the bank and the financial institutions. Usmani added
that at present, he had no scheme to submit for rehabilitation of the company.
The company, had, however, gone for appointment of a technical consultant in
consultation with IDBI for study of technical feasibility of the unit and would
confirm his appointment to the Bench within 15 days. In view of the company's
incurring a cash loss of Rs. 2.4 crores approximately daily Usmani requested
the Bench for taking the measures as it deems fit for rehabilitation of the
company."
39. The Board made
further observation :
"The Bench
further observed that the company was not in a position of rehabilitation with
its own efforts. The Bench, therefore, appointed IDBI as operating agency in
exercise of the powers under Section 17(3) of the Sick Industrial Companies
(Special Provisions) Act. The operating agency was directed to submit a draft
rehabilitation scheme keeping in view the provisions of Sections 18 and 19 of
the Act."
40. The Board having
come to the conclusion that the Corporation cannot be revived unless measures
are taken for its rehabilitation, the mere fact that a specific order in
writing under Section 17(1) of the Act was not passed before the measures were
taken by the Board under Section 17(3) of the Act, the opinion submitted by it
for winding up is not liable to be set aside on this ground.
41. The fifth
submission of learned counsel for the petitioner is that the Corporation or the
State Government could not be permitted to approbate and reprobate at the same
time. It is contended that the Corporation as well as the State Government both
had challenged the order of the Board before the Appellate Authority on many
grounds which had been taken by the petitioners and now they cannot justify the
order of the Board. A party to a proceeding may challenge an order but if the
order is not challenged subsequently, it cannot be said that they are estopped
from supporting the order. The State Government admittedly did not pursue the
appeal filed by it and it was dismissed in default. As regards the appeal filed
by the Corporation, it has been decided by a common order by the Appellate
Authority in respect of the appeal filed by the Corporation and the
petitioners.
42. A person cannot
approbate and reprobate at the same time to the detriment of his opponent. In Bhau Ram v. Bay Nath Singh, AIR 1961 SC 1327, where a vendee who had filed an appeal by special leave
to the Supreme Court against a pre-emption decree passed against him, it was
held that he was not precluded from proceeding with the appeal, merely because
he has withdrawn the pre-emption price. It was observed (headnote) :
"Upon this
principle a person who takes benefit under an order de hors the claim on the
merits cannot repudiate that part of the order which is detrimental to him
because the order is to take effect in its entirety."
43. Learned counsel
for the petitioner has placed reliance upon the decision in Official Receiver,
Kurnool v. Vale Pedda Mounamma, AIR 1968 AP 336, wherein it was held that a
party litigant cannot be permitted to assume inconsistent positions in court, to
play fast and loose, to blow hot and cold, to approbate and reprobate, to the
detriment of his opponent. In P. Saraswathi Ammal
v. Lakshmi Ammal alias Lakshmi Kantam, AIR 1978 Mad 361, it was
observed that a party cannot approbate and reprobate and compel the court to
accept the case after an open exhibition of inconsistency. These principles can
be applicable only when it is shown firstly, that there is an inconsistency and
secondly, that the party has taken benefit while approbating or reprobating.
The rehabilitation scheme could be enforced only when the State Government or
the financial institutions infuse their funds in the scheme. The State
Government never agreed to provide financial assistance in revival of the
scheme. The mere fact that the appeal was filed taking a certain ground did not
oblige the State Government to infuse the fund in carrying out the scheme
submitted by the operating agency or the Corporation and support the version of
the petitioners.
44. On behalf of the
respondents it has been urged that the workers and other employees of the
Corporation have no right to object to the proceeding before the Board nor can
they raise technical objections before the High Court. In Navnit R. Kamani v. R.R. Kamani [1989] 66 Comp Cas 132 ; AIR 1989 SC 9, it has been held that the
workers have a right to submit a rehabilitation scheme in the form of the
co-operative societies and in case the scheme submitted by the workers is found
to be viable by the Board, the same can be sanctioned. The workmen and the
trade union representing their interest are entitled to be heard and to submit
that the company can be revived. The workmen having devoted many years in the
service of the company shall be thrown out of the employment if the company is
not revived. They have put their toil for years in running the company. The
trade unions, representing their interest, can submit their point of view in
the interest of the workmen and while submitting the scheme for revival of the
company they do not represent the interest of a single workman but of all the
workers. The Act itself recognises the right of all concerned parties to submit
objections and Section 25 permits "any person aggrieved" to file
appeal. The apex court has upheld the right of workers in National Textile Workers' Union v. P.R.
Ramakrishnan [1983] 53 Comp Cas 184 ; AIR 1983 SC 75, wherein
it has been held that the workers of the company are entitled to appear at the
hearing of the winding up petition whether to support or to oppose it so long
as no winding up order is made by the court. It was observed as under (page
198) :
"... it is not
only the shareholders who have supplied capital who are interested in the
enterprise which is being run by a company but the workers who supplied labour
are also equally, if not, more interested because what is produced by the
enterprise is the result of labour as well as capital. In fact, the owners of
capital bear only limited financial risk and otherwise' contribute nothing to
production while labour contributes a major share of the product. While the
former invest only a part of their moneys, the latter invest their sweat and
toil, in fact their life itself. The workers, therefore, have a special place,
in a socialistic pattern of society. They are not mere vendors of toil, they
are not a marketable commodity to be purchased by owners of capital."
45. The workers can
submit their own proposal. The workers were, however, given opportunity but
they could not present any viable scheme and they were not interested in
submitting any scheme run by the workers' co-operative society. In this
petition the petitioners have not submitted that workers have their own viable
scheme which was not considered by the Board. Their only contention is that the
State Government could have infused funds or the Corporation could be revived
by investment of the funds after sale of its surplus assets. As discussed
above, it has not been found that there were any such surplus assets after sale
of which the Corporation could be revived and its net worth could exceed heavy
losses incurred by it. Secondly, mere sale of surplus assets was itself not sufficient
for reviving the sick company as it has further to be examined that it will
make its net worth exceed the accumulated losses within a reasonable time.
46. Great emphasis
has been laid on the fact that it is not just and equitable that the Corporation
should be wound up. It may be noted that the Corporation was declared a sick
company by the Board on October 7, 1992, and for about five years it laboured
hard to find a viable scheme so that the sick company could be revived and its
net worth exceed the accumulated losses, (c)n September 30, 1991, the loss was
Rs. 180.13 crores while share capital and reserves were Rs. 68 crores. On March
30, 1994, the loss was Rs. 319 crores and on March 31, 1998, it rose to Rs.
548.85 crores while the reserves remained the same. The running of an industry
is based not only on investment of capital but the management and other factors
are also responsible for the same. In the counter-affidavit filed by Satya
Narain Singh on behalf of the State Government in paragraph 13 it has been
stated that the major reasons for the sickness of the sick company were
financial, productive, technical and raw material, managerial and marketing
problems. The difficulties have been in erection/commissioning of the plants at
Dalla, high cost of handling and transport of clinkers to Chunar, complex
limestone deposit at marginal to below marginal quality, out-dated technology,
high operating cost, high power consumption because of hard limestone, much
work force, imbalances in plant machinery and inadequate maintenance also
contributed to the loss and sickness of the sick company.
47. The financial
institutions had given loan and the interest payable to them are heavy. The
Board examined all the aspects. The court in this petition cannot substitute
its own opinion. After examining the entire material in relation to the
functioning of the sick company the BIFR has submitted its opinion that it is
just and equitable to wind up the company. I do not find that the opinion
submitted by the Board is perverse or there is any justifiable ground not to
accept the same.
48. In the last,
learned counsel for the petitioner submitted that the workmen had been working
in the sick unit. They are entitled to wages till the winding up order is
passed. This submission was also raised before the Board and it noted the
submission in its meetings held on September 26, 1996, and observed as follows
:
"In case the
State Government decide to wind up the Corporation they should do so and pay
all the dues of the labour. The present Government has different policy
regarding sick P.S.Us, as compared to the previous Government and the workers
are hopeful that a favourable view will be taken in this case."
49. There is no
reason why the workers be not paid their salary. In view of the above
discussion the writ petition is dismissed against the recommendation of the
Board dated February 6, 1997, and the order of the Appellate Authority dated
February 19, 1998. The writ petition, in so far as the direction in the nature
of mandamus commanding respondent No. 4 to make payment of all dues to the
workmen for the period till today, is allowed. In case respondent No. 4 is not
able to pay the amount, on winding up of the Corporation, the payment shall be
made to the workers prior to making any payment to any person in accordance
with Section 529A of the Companies Act, 1956. The writ petition, as against the
other reliefs claimed in the writ petition, is hereby dismissed.
50. The parties shall
bear their own costs.
8/12/1999
4
In Re: U.P. Cement Corporation Ltd. (In Liquidation) vs on 14/2/2002
2002 112 CompCas 562 All
ORDER
1. U.P. State Cement
Corporation Ltd. (UPSCCL) was declared as a Sick Industrial Company by Board
for Industrial and Financial Reconstruction (BIFR) on 7-10-1992, and IDBI was
appointed as the Operating Agency. Cemtech India was appointed by UPSCCL to
prepare a techno - viability report which was submitted in July, 1994. As on
31-3-1994, the accumulated losses of UPSCCL were Rs. 319.81 crores as against
the share capital and reserves of Rs. 68.29 crores. Company did not submit any
rehabilitation proposal or comments on the report submitted by Cemtech and thus
BIFR directed the company to submit an alternative revival plan to the
Operating Agency. The workers were also directed to submit rehabilitation
proposal with the help of Tata Consultants within two months indicating the
means of finance. No proposal was received by the Board within the time
indicated. By the same order of the BIFR dated 28-12-1993, the State Bank of
India, Allahabad Bank and IDBI were directed under Section 21 of the Sick
Industrial Companies (Special Provisions) Act 1985, to prepare a complete
inventory of all assets and liabilities and lists of
registers/records/documents of shareholders and creditors and to get valuation
done and to report the matter to the Board. Since no proposal were received the
Operating Agency issued an advertisement for change in management on
6/8-3-1995. Four offers were received in response to the advertisement. The
Operating Agency was required to examine the relative merits of the proposals.
The State Government was also required to indicate their view regarding their
equity of Rs. 68 lacs, and loans of Rs. 50 crores to UPSCCL in the event of
privatization. Out of the four proposals, Gujarat Ambuja Cement Ltd., informed
that they are not interested in the take-over and Dalmia Industries Ltd. did
not submit any proposal. Dalla Sharamik Sangthan and U.P. State Cement Corporation
Workers Industries Co-operative Society submitted proposals. The Operating
Agency did not consider these proposals to be support worthy. In view of the
employment of about 6000 workers, on the request of State Government, the
Operating Agency was required to issue a fresh advertisement and to approach
the resourceful parties to make reasonable efforts to locate resourceful
parties to submit offers. Fresh Advertisement was issued on 24-11-1995. The
Operating Agency also approached about fifteen major cement companies, but no
concrete proposal was received. Dalmia Industries Ltd. H.B. group and
Khandelwal Cement Ltd. sought time to submit proposals. They sought waiver of
entire interest on term loans of financial institutions and bank which was not
acceptable to them. Both the bidders were directed to deposit a some of Rs. 5
crores each in an interest bearing 'No Lien' account with the lead Bank by
15-2-1996, and the Operating Agency was directed to examine the proposals. H.B.
Group submitted a proposal and requested for some information and visit to
unit.
Opportunity was given to visit the units and
to have a meeting with the State Government to settle the terms and conditions.
No agreed comprehensive proposal came forward for consideration. The proposals
of H.B. Group did not inform to any norms of one time settlement. The Financial
Institution and Banks were also not prepared to enter into a fresh term loan
agreement. The proposals required the State Government to induct fresh funds on
which the State Government did not give its views. The Workers union did npt
agree to enter into any kind of agreement with H.B. Group. After giving
opportunity to the State Government to convey their view in the matter, the
Board directed that if no comprehensive rehabilitation proposal was received
from the State Government by 7-11 -1996, an opinion to wind up the company
would be issued. Since the State Government requested for further time to
constitute a Committee whose Chairman was to be nominated by the State Government,
the Board looking into the circumstances, in which accumulated loss had
increased to Rs. 380 crores and four years time had been spent in finding out
and exploring all possibility of rehabilitation formed a prima facie opinion
that the company was not likely to make its net worth positive within a
reasonable time, while meeting all its financial obligations, and was not
likely to become viable in future, and that it was thus just equitable, and in
public interest that it should be wound up under Section 20(1) of the Act. A
show-cause notice was issued on 18-11-1996,
2. On 6-2-1997 the
Board found that H.B. Group had withdrawn their proposal and obtained refund of
the amount. It gave a further opportunity to the company. State Government and
Workers to submit a comprehensive twice. A revival proposal was submitted on
26-3-1997 for closure of two production lines, modernization/expansion of
existing facilities. OTS of the dues of financial institution and banks, VRS as
well as various concessions from the State Government including of induction of
fresh funds for OTS, waiver of interest and conversion of their loans into
equity. Operating Agency reported that the corporation will require interest
free funds of order of about Rs. 250 crores for two years of implementation of
scheme and that the State Government has not communicated their commitment to
induct requisite interest-free funds in the corporation for its revival.
Subsequently the Operating Agency by its letter dated 17-6-1997 informed that
even during the extended period they have not received any communication from
the Government of UP, and thus Board concluded that the promoters were not
serious about rehabilitating the company, and that there was no rehabilitation
proposal with means of finance fully tied up before the Board for consideration
despite ample opportunities having been given to all concerned. The Board,
thereafter confirmed this prima facie opinion that the company is not likely to
make its net-worth exceed the accumulated losses with a reasonable time while
meeting all its financial obligations, and that the company as a result thereof
is not likely to become viable in future, and hence it should be wound up under
Section 20(1). This opinion of the Board in its order dated 2-7-1997 was
forwarded by the Registrar of BIFR vide its letter No. 60792-B-III dated
9-7-1997 to this Court which was received on 14-7-1997 in the Registry and on
17-7-1997 in the company section, and was registered as Company Application No.
4 of 1997.
3. Aggrieved by the
aforesaid order of the BIFR the company filed an appeal No. 169 of 1997 before
the AAIFR on 8-8-1997 which was admitted and the operation of the order of BIFR
was stayed. The company moved an application No. 62817 dated 24-9-1997 on
25-9-1997 for staying the proceedings before this Court. Appeal was dismissed
on 19-2-1998 upon, which the Chief Standing Counsel for State of U.P., filed an
application No, 40402 of 1998 (A-8) under Section 20(2) of the Sick Industrial
Company (Special Provisions) Act, 1985 dated 14-7-1998 filed on 15-7-1998
inform- ing the Court that the appeal has been dismissed on 19-2-1998 praying
that the Court may order winding up of the UPCCL, and appointed an Officer as
official liquidator of UPCCL having all the powers of Official Liquidator under
the Act. This application was supported by the affidavit of Sri Vishwa Nath
Dubey, Upper Division Assistant in Industrial Development Department, U.P.,
Lucknow. Thereafter an application No. 43683 of 1998 was filed by the State
Government through Chief Standing Counsel on 24-7-1998 for listing the matter
for orders for appointment of liquidator. An Application No. 44062 of 1998 was
filed by the company on 27-7-1998 through its counsel Sri Shiv Nath Singh for
winding up of the company and to appoint Official Liquidator as liquidator of
the company along with affidavit of Padam Singh, Managing Director of
U.P.C.C.I. Churk, Mirzapur.
4. Cement Workers
Union (CITU) an 13 other trade unions filed a Writ Petition No. 15134 of 1998
challenging the order dated 19-2-1998 passed by AAIFR and the order dated
2-7-1997 passed by the BIFR. They filed an affidavit (A-12) in this company
application to keep the proceedings in abeyance till the disposal of the Writ
Petition. The State Government filed a reply to the aforesaid application filed
by the Cement Workers Union in the form of Affidavit of Sri K.L. Meena, Special
Secretary, Government of U.P. Industrial Development Department, Lucknow, for rejection the
application to keep the winding up proceeding in abeyance on the ground that
UPSCCL is incurring losses. In detailed objection in the form of affidavit he
gave reasons for losses suffered by the company. In para 9 it was stated that
UPSCCL has on its rolls, including casual muster roll 5300 workers and that the
major reason for the sickness of the Sick Company were financial, productive,
technical, raw material, managerial and marketing problems. In paragraphs 10 to
35 he spelled out the reasons of financial losses which included the old and
completely worn/out factory of Churk plant. The second plant of the Sick
Company at Dalla, Cement Factory was installed and commissioned in the year
1970-71. It was stated that dry process cement plant established by the company
for clinker production at Dalla and Grinding unit commissioned in 1982, could
never produce/ manufacture to its full capacity. The maximum production, was
achieved only in the year 1986-87, of 10.34 lacs metric tone against the
installed capacity of 16.80 lacs tones, which over the year have come down to
approximately 2.2 lacs metric tones per year. The dry process plant was set up
after taking huge amount of loan from financial institutions which the
corporation failed to pay and that the bank and financial institutions have
refused to give any further financial assistance to the company. The company
was unable to met competition from private sector which manufacture about 90
per cent of the installed capacity of cement. In paragraphs 36 to 45 Sri K.L.
Meena mentioned about the steps taken by the BIFR to explore the possibilities
of rehabilitation. He stated that the workers union had given exaggerated
statement of surplus assets based on the report of Chartered Accountant in
pursuance of the orders of this Court in July, 1998 claiming Rs. 151 crores as
surplus assets which is self contradictory to the stand of the workers union
before the Board as well as before the High Court in the Writ Petition in which
the workers unions have claimed surplus assets to be not more than five crores.
In the writ petition the workers' union filed a fresh rehabilitation scheme in
which the surplus assets were shown to be of 23 crores. In para 46 he stated
that as the three units of the company were not able to comply with the
prescribed standard of emission norms in its various sectors on which the
Central Pollution Control Board on 16-6-1997 has issued directions under
Section 5 of the Environment (Protection) Act, 1986, and directed the company
to stop their operation in all their three units. In the same paragraph it was
stated that the continuous running of the company is causing disastrous effect
on the natural vegetation/inhabitants of the area. In paragraph 59, he referred
to the case of Rohtas Industries Ltd., Dalmia Nagar in District Rohtas Bihar
reported in 1986 (86) Company Cases, Page 1, in which the Apex Court
entertained the writ petition during the pendency of the winding up before the
Patna High Court and experimented with adopting various alternative schemes for
rehabilitation of that industry with the help of the BIFR and after keeping the
winding up proceeding in abeyance for years together, concluded that inspite of
the best efforts the object to revive the company does not appear feasible and
held that in these circumstances, the future course of action and while
bringing end to the proceedings directed, the winding up proceedings before
Patna High Court be resumed, Sri Meena concluded that in view of the facts and
circumstances enumerated by him and in view of Rohtas Industries experiment,
the Court may order winding up of UPSCCL rather than entertaining similar
rehabilitation scheme, as were submitted before the Board and were not found viable
by the Board.
5. In his aforesaid
affidavit Sri K.L. Meena also submitted that since 1992 the State Government
has directed sales tax deferment to the sick company for a period of 5 years
with a benefit of approximately 50 crores as financial assistance which did not
include latest payment of Rs. 11.25 crores given to the corporation as an aid
for payment of wages/salaries to employees for a period of 4-1/4 months. The
company is not paying the taxes, royalties and that no measure whatsoever, has
been taken by the State to recover the same. It has been provided electricity
and other facilities, for which the company is not making payment for the last
several months. It was categorically mentioned that the State Government is
neither in a position to invest hundred of crores rupees in the present sick
company, and thus experiment without surety of rehabilitation of the company.
He stated that the State Government had communicated to BIFR about the State
Government's decision of not being in a position to invest huge amount of
hundred of crores of rupees which was proposed by the Operating Agency; that
the decision of the State Government was never reversed and that the State
Government has not been in a position to further invest huge amount as required
by the Operating Agency. At present there are no assets whatsoever, what to say
about the surplus assets free from encumbrances of the company and all assets
of the company are mortgaged with the financial institutions and banks,
including the Industrial Development Bank of India, against the loans taken by
the sick company. Neither the corporation nor the State Government has control
whatsoever on the realization arising but of the assets, as first charge on
these assets vests with financial institutions/banks. He thereafter submitted
that fallacy in the report of Chartered Accountant based on the valuation of
report of M/s. S.K. Ahuja and Associates, Kanpur
and Valuation Report of A.F. Fargusan and Company, in which the findings were
contradictory. It was mentioned that S.N. Singh and Company has further
estimated figures of the assets and the justification to calculate value of the
school building which are to run as Government Institutions and valuation of
land are high in the backward area. This affidavit running into 113 paragraphs
given by Sri K.L. Meena, Special Secretary, Industrial Development Government
of U.P. summarized the position of the State Government and its objection to
the rehabilitation proposals of the Cement Corporation Unit.
6. Writ Petition No.
15134 of 1998, was dismissed by this Court on 8-12-1999 with observations that
in case the assets of company are sold, the workers will be given first
priority in payment. The operative portion of the order is quoted as below :
"In the last,
the learned counsel for the petitioner submitted that the workmen had been
working in the sick unit. They are entitled to Wages till the winding up order
is passed. This submission was also raised before the Board and it noted the
submission in the meetings held on 26-9-1996 and observed as follows :
In case the State
Government decide to wind up the corporation they should do so and pay all the
dues of the labour. The present Government has different policy regarding sick
P.S.Us as compared to the previous Government and the workers are hopeful that
a favourable view will be taken in this case.
There is no reason
why the workers be not paid their salary. In view of the above discussion the
writ petition is dismissed against the recommendation of the Board dated
6-2-1997, and the order of the appellate authority dated 19-2-1998. The Writ
Petition, in so far as the direction in the nature of mandamus commanding
respondent No. 4 to make payment of all dues to the workmen for the period till
today, is allowed. In case respondent No. 4 is not able to pay the amount on
winding up of the corporation, the payment shall be made to the workers prior
to making any payment to any person in accordance with Section 539A of the
Companies Act, 1956. The writ petition, as against the other reliefs claimed in
the writ petition, is hereby dismissed."
7. The workers also
filed objections to the winding up of the company in this company petition.
These objections were considered by the Court. After finding that the writ
petition has been dismissed based on the same ground on which the objections
were filed, the Court concluded that the opinion of BIFR does not suffer from
any illegality. Accepting the opinion of BIFR the corporation was directed to
be wound up by order passed on 8-12-1999, with a direction to the official
liquidator to take appropriate action in accordance with law. A Special Appeal
No. 38 of 2000 filed by Cement Workers Union and others against winding up
order was dismissed on 31-7-2000.
8. The Statement of
affairs of the company in pursuance of Section 454 of the Companies Act, 1956,
on Form 157 verified by Sri Yashpal Sharma, the company secretary on 6-3-2000,
was submitted to official liquidator with a copy to the Registrar of the
Companies on 22-3-2000.
9. An application No.
11 of 2001 was filed by Allahabad Bank praying that the Court may exempt the
properties, detailed in annexures 2 and 3 of the application for winding
up/liquidation proceeding on the allegation that it had given loan and credit
facility to the corporation and the company had hypothecated certain properties
with it under an agreement dated 31-3-1981. The application was dismissed by
the Court on 8-12-1999 with the following observations :
Application No. 11.
"This is an
application filed by Allahabad Bank, praying that the Court may exempt the
properties detailed in annexures 2 and 3 of the application from winding
up/liquidation proceedings, on the allegation that it has given loan and credit
facility to the corporation and the corporation has hypothecated certain
properties with it under an agreement dated 31-3-1981.
The applicant claims
to be secured creditor. A secured creditor is entitled to preference for
realization of its amount under Section 529A of the Companies Act, 1956. The
secured creditor cannot claim that the properties which have been hypothecated
should be exempted from winding up. The winding up order is not to be passed in
relation to a particular property. It consists of the whole assets of the
company. The applicant has a right to submit its claim before the official
liquidator. The application is accordingly dismissed."
10. Application
(A-16) filed by employees (thirty seven in number) of the company (in
liquidation) was also disposed of with the observation that these applicants
can claim such relief for appropriate proceedings before the appropriate
authority. Applications A-21 and A-22 filed by Balaji Trading Company was
disposed of on 13-4-2000 by giving permission to the applicant to continue the
arbitration case before the arbitrator Mr. Justice G.B. Singh (retired) in
proceedings in O.S. No. 281 of 1999.
11. At this stage,
the subject application No. 47788 of 2001 (A-31) was filed on 17-5-2001 by the
State Government with a prayer to direct official liquidator for taking
appropriate steps in the light of the order dated 8-12-1999 passed by this
Court after giving due consideration, and considering the offer made by Grasim
Industries Company, and IDBI, so that the liability of the company may be
discharged/paid, and the interest of the labour and other staff of the cement
corporation may be protected. It is opposed by Allahabad Bank in its
application No. 50506 of 2001 filed on 24-5-2001 with the prayer that the
application for permission to sell the assets of the corporation be dismissed.
12. The application
filed by the State Government is supported by affidavit of Sri Hari Krishna,
the Secretary, Heavy Industries, Government of U.P. Lucknow. He has stated that
the official liquidator was required to take immediate steps after winding up
order. However, no effective results have been achieved in pursuance of the
directions given by this Court as such the State Government in order to assist
official liquidator to expedite the matter and for ensuring compliance of
Court's order dated 8-12-1999 and to save public money, and since the Labour
Union and other staff of the U.P. State Cement Corporation Ltd., were
continuously pressing for payment of its wages etc., published an advertisement
in newspapers inviting tenders for taking over Cement Plants of the U.P. State
Cement Corporation Ltd. In the said advertisement it was mentioned that company
is being wound up by the High Court of Judicature at Allahabad, on the recommendation of BIFR,
hence the said tender would be subject to the clearance by the High Court and
BIFR. A copy of the advertisement made in the newspaper 'The Economic Times'
dated 10-2-2001, and the newspaper 'Business Standard' dated 12-2-2001 has been
filed as Annexure A-4. In the said advertisement the last date for the
interested parties for submitting their bids was 31-3-2001 by 3.00 P.M. The
State Government extended the last date for submitting bids with regard to
aforesaid matter by 30-4-2002 to get worth while offers, and published it in
'Economic Times' on 31-3-2001. In the advertisement published in the newspaper
the Government of U.P. announced/declared a number of reliefs and concessions
to be granted by the State Government. It is submitted that the State
Government adopted a very transparent process by duly advertising which make
package of incentive very clear. Three Cement companies initially showed
interest, however, finally only one company namely Grasim Industries Ltd. came
forward and submitted an offer on 30-4-2001 which was otherwise also valid as
per tender notice. The bid submitted by Grasim Industries Ltd. was in two
parts, which was opened by the concerned committee constituted for the purpose.
The note of the committee has been annexed as Annexure A-6, which shows that
the committee consisted of following officials:
1.Commissioner
Industrial Development - Chairman
2.Secretary, Small
Industries Development - Member
3.Secretary, Finance
Department - Member
4.Secretary, Heavy
Industries - Member
5.Managing Director,
UPSIDC - Member
The committee opened
single tender on the stated reasons that the unit has closed production, its
machinery is diminishing, five thousands and more employees are facing
uncertainty and that such a big production capacity is suffering loss, and
further that after two advertisements only one tender has been received.
13. The tender is in
two parts namely qualifying offer of first part of Rs. 195 crores, towards
settlement of dues of Banks and Financial Institutions and with employees, and
part II of the said bid contains a proposal of Rs. 35 crores towards VRS scheme
of the staff of State Cement Corporation Ltd. and Rs. 11 crores as over and
above the amount given in the bid. The total offer of Grasim Industries Ltd.
was does found to be of Rs. 241 crores. In para 15 of the affidavit it has been
stated that the advertisement was made subject to sanction given by the High
Court, and as such the Secretary, Heavy Industries along with communication
letter sent by A.P. Singh, Industrial Development Commissioner/Principal
Secretary, Government of U.P. personally met official liquidator on 3-5-2001,
and tendered copy of the said communication along with other relevant
documents. The official liquidator did not accept the said communication, and
required it to be submitted before the Court. It has been stated that the
communication of the State Government was to assist the official liquidator so
that on one hand in compliance of the order dated 8-12-1999 passed by this
Court should be ensured and the staff of U.P. State Cement Corporation,
Financial Institution as well as public money can be saved. Paragraph 17 of the
affidavit, relates to the dues of the financial institution. It is stated that
the Secretary, Industrial Development Government of U.P. met the Chairman and
Managing Director IDBL In this meeting it was indicated that the financial
institutions will be willing to settle the dues against UP State Cement
Corporation on payment of principal amount. In support of this averment the
affidavit encloses a note of Secretary, Industries Development which has been
marked as Annexure A-8. The said note is not enclosed with the original
affidavit, instead minutes of the committee dated 30-4-2001, on the date of
opening of the tender has been annexed with the affidavit.
14. Coming to the
advertisement made by the State Government in 'Economic Times' dated 10-2-2001
and 'Business Standard1 dated 12-2-2001, it is necessary to quote the
advertisement to understand the true nature of the invitation of offer. The
advertisement is quoted as below:
U.P. State Cement
Corporation
(A Government of U.P.
Undertaking under liquidation) TENDER NOTICE FOR TAKE OVER OF A CEMENT PLANT
Government of Uttar
Pradesh invites offer from interested parties for take over of U.P. State
Cement Corporation, on the basis of two part bid offer.
First part of bid
would contain an Unconditional Acceptance clearing the outstanding workers
retrenchment benefits to all the workers and the one time settlement dues for
financial institutions and B. The amount expected for this is Rupees One
Hundred Ninety Five Crores. This would be qualifying offer part of the bid
would be an offer and above the qualifying offer. IInd part of the bid of only
such bidders be opened who have tendered unconditional acceptance of first part
(qualifying bid).
The Highest Bidder of
Part II would be awarded the tender immediately
Reliefs and
Concessions
Government of Uttar
Pradesh would be ready to :
1. Write off all past
Government loans with interest of the company.
2. Write off all
Electricity/Trade Tax/Royalty dues.
3. Offer Trade Tax
exemption to the unit for Ten years.
4. Offer waiver of
royalty dues for Ten years.
5. Renew the Lime
stone leases in favour of the company.
6. Power load of the
new plant would be sanctioned and required power supply ensured.
7. Electricity Duty
Exemption would be granted on any captive power generation facility set up by
the promoter for this plant.
Properties on Offer
Include the lime
stone lease at Ninga & Kajrahat having over hundred million tonnes of lime
stone deposits adjacent to the factory site. Report of Director of Geology and
Mining regarding quantity and composition of stone shall be attached to the
tender form. The existing plants at Chunar and Dalla and all other properties
of Corporation are included in the offer, minus the land at Churk plant and
lease of Gurma land which would vest the Government of Uttar Pradesh.
Legal Status of the
Company
The company is under
liquidation under the orders of Hon. High Court, Allahabad on the recommendation of BIFR.
Therefore, the above tender would be subject to clearance of Hon. High Court
and the BIFR.
Last Date
Interested parties
must submit their part bids by 31 -3-2001 by 3.00 P.M. to the Secretary,
Industries Development, Government of U.P. Room No. 423, Secretariat Annexe
Bhawan, Lucknow-226, Phone No. 0522-239280, Fax: 0522-239235, e-mail: Harry @
upindia or epbup@satyam.net.in.
Tender papers
Tender papers and
information memorandum about the company giving complete details of the assets
by obtained from the above address on all working days on payment of Rs. 5,000
through a Bank draft in favour of U.P. Government Tender Form can also be
downloaded from the internet from website www. upindia. or www.epbupindia.com
and the requisite fee for the forms can be submitted along with the bid. Site
inspection would also be arranged if required.
Earnest Money Deposit
The tendering party
would have to submit their bids along with an earnest money deposit (refundable
Rupees Five Crore in the form of a Bank draft) in favour of Uttar Pradesh
Government, Lucknow.
15. The Memorandum of
information (including guidelines for submitting of tenders) titled as
invitation for offer for sale to U.P. State Cement Corporation marked as confidential
and valued at Rs. 5,000 is enclosed as 'appendix 6' to the affidavit. The
document gives the background, liabilities statements, history, details of the
lease rights to be transferred, details of properties of the corporation,
silent features and USP's of this offering, guidelines on submission of offers
format for submission of bids and Annexures - Reports of Directorate of Geology
and Mining on Kajrahat and Ninga Mines.
16. In the background
it has been stated in the memorandum of information that U.P. State Cement
Corporation Limited is State Government undertaking registered as a public
Limited Company under the Indian Companies Act, 1956. The entire share capital
is held by the Government of U.P. through the Governor of U.P. or his nominees.
It has the largest installed capacity for manufacturing of cement. The four
units of the company are situated at Churk, (wet process) commissioned in 1954
and 1962, installed capacity (i) Clinker 4.56 Lac MT and (ii) Cement 4.80 Lac
MT; (2) Dalla (wet process) commissioned in 1971-72 installed capacity (i)
Clinker 3.80 Lac MT and (ii) Cement 4.00 Lac MT; (3) Dalla (Clinker Unit) (Dry
process) commissioned in 1983-84 installed capacity 8 Lac MT; and (4) Chunar
(Grinding Unit) commissioned in 1983-84 with installed capacity of Cement 16.80
(Lac MT). In the Liabilities statement as on 8-12-1999 is shown as share
capital of 68.28 crores and total of 879.98 crores towards loans and current
liabilities. The break-up of these loans and current liabilities is given as
below :
(i) Long term loan
from FIs/Banks:
(a) Principal - 54.20
(b) Interest - 235.42
(ii) Working Capital
Loans - 4.65
(iii) Loans from
State Government - 165.80
(iv) Current
Liabilities :
(a) Salaries and
wages etc. - 106.64
(b) Electricity Dues
- 110.70
(c) Outstanding Sales
Tax - 67.10
(d) Royalty on Lime
Stone - 20.10
(e) Suppliers payment
etc. - 47.09
17. The offer of
Grasim Industries Ltd. have been annexed to the application as 'Appendix 2'.
This offer dated 30-4-2001. Reference Grasim Industries Ltd. as a Aditya Birla
Group with turnover for the year ending March 2001 to be more than 5,000
crores. It encloses and demand draft dated 27-4-2001 drawn on State Bank of
India payable at Lucknow for Rs. 5 crores and accepts to pay to the Government
of Uttar Pradesh, to clear the outstanding dues, retrenchment/VRS benefits to
all workers of the corporation and to enter into one time settlement by the
Government of U.P. with the financial institution and banks, on the outstanding
long-term loans of the corporation, as detailed in Memorandum of Information
and offers a total amount agreed towards liability amounting to Rs. 195 crores.
The annexure to the bid gives the condition upon the offer. These conditions
requires sale transfer of the undertaking to be passed within six weeks or the
time mutually agreed from the date of the bid; all claims of secured and
unsecured creditors, employees, officers and executors, wages, arrears in PF
and ESI retrenchment compensation etc. to be paid out of the consideration
price and no liability beyond the bid amount and further the bidder did not
assume any obligation for payment of any claims for secured creditors or
unsecured creditors, employees, officers, executors etc. including sales tax,
income-tax, excise, royalty tax and all other taxes and any other dues of
Central Government and State Government of Indian Railways beyond the bid offer
Confirmation from workers, employees and officers or any staff or contract or
subject to the re-employment, lease and extension of lease for limestone as
listed in Schedule IV of the Memorandum to be granted/renewed in the name of
the bidder on the same terms and conditions on which it was granted to UPSCCL
without liability of payment of any arrears or other dues and the agreed consideration
to be paid as full and final payment with no liability if arises in future
beyond the consideration. The final order of the High Court in the condition
required to be fully effective and binding and in case any appeal or with or
special leave petition, stay order has been understanding to have deemed to
have become final until appeal, with or SLP is rejected and the time for filing
appeal, writ or SLP has expired. The bidder required evidence/representation
from the Governor of U.P. that all dues payable to U.P. Government shall be
waived. Sales-tax exemption on sale without any ceiling of amount will be
available to the bidder for a period of 10 years from the date of handing over
possession and royalty tax exemption on limestone will be available to the
bidder for a period of 10 years in case any land has been acquired the
permission of State Government under Section 44A of the Land Acquisition Act,
1984 for sale of transfer of the property in favour of the bidder and no
additional/ further payment shall be required to be made or if the land has
been required by private purchase by UPSCCL to arrive and clear and marketable
title free from encumbrances to the land and its weight to transfer the same
without requiring any permission/approval or sanction of any statutory or other
regulatory agency and that all taxes including land revenue shall be paid by
UPSCCL. The bidder further required evidence of all these payable to the bank
and financial institutions, all guarantees, warranties and indemnities of the
suppliers of machinery is continued to the value to the bidder, evidence that
electricity company, water works and all other utilities shall continue to
provide on same terms and conditions. The conditions further continued up to 20
items which need no require further elaboration. In fact the bidder required
all reliefs and concessions, guarantees and no liability towards any financial
institutions, State Government, Government Department or employees. One more
significant condition No. 15, required that on the sale, the bidder has assumed
that there remained no amount payable on the deeds of transfer and sale or
assets or any other documents and vacant possession of the land, houses,
colonies, plant and other assets be given. They also required copies of title
deeds of land including copy of mining leases including electricity duty
exemption on captive power plant and railway sidings/ agreement or arrangement
with UPSCCL and India Railway authorities should continue to Grasim silent
assets.
18. Allahabad Bank
has filed Civil Misc. Application No. 50568 of 2001 on 24-5-2001 with a prayer
that permission of sale of assets of the corporation be dismissed with costs.
It is stated that Allahabad Bank is secured creditor of UPSCCL and the State
Government of U.P. is guarantor of the whole extent of the debts. The Bank
filed claim petition against UPSCCL and State Government of U.P. as guarantor
for recovery of Rs. 87,15,71,259.72 as on 22-4-1999 calculated up to that date
in the Debt Recovery Tribunal, Jabalpur being claim petition Original
Application No. 149 of 1999 which has been transferred to Debt Recovery
Tribunal, Allahabad and registered as Transfer Application No. 1464 of 2000.
Notices have been served on the Corporation and the State Government but they
have not filed and written statement and in the mean time winding up order was
made on 8-12-1999. An application for injunction against the Corporation and
the State Government for transferring, alienating or otherwise dealing with or
dispossessing off any property and assets, is pending before the Tribunal.
Notices have been sent to the Chief Secretary of the Government of U.P. and the
Corporation, but they have not appeared. They have not filed any counter
affidavit and have neglected to appear in the matter, and have instead filed an
application for permission/approval for the sale of the assets. It has been
submitted that provisions of the Central Act No. 51 of 1993, override the
provisions of the Companies Act, 1956, conferring exclusive jurisdiction in
respect of the adjudication of the claim and execution of the final order on
the Tribunal and the Recovery Officer in respect of the debts payable to the
bank, and that there can be no interference of the Company Court in respect of
payment due to bank payable before Debt Recovery Tribunal. It is lastly alleged
that the application of Government of U.P. and Corporation is mala fide and is
not maintainable.
19. Arguments were
heard on 25-5-2001. The matter was thereafter directed to be heard after vacations.
On 25-7-2001 the Court called for report of the official liquidator with regard
to handing over of the possession of the plant and machinery and other assets
after preparing inventory. Directions were given that the official liquidator
and his staff will be provided security for taking over the possession of the
property of the company. The Chief Standing Counsel stated that he is in a
position to hand over inventories to the official liquidator.
20. On 6-8-2001, the
Court was informed that the financial institution which had finances the
company (in liq.) held a joint meeting on 2-8-2001 to consider the proposal of
the Government of Uttar Pradesh for one time settlement. The meeting which was
attended by officials of Allahabad Bank, State Bank of India, IDBI and the officials of Government of
Uttar Pradesh was adjourned on the request of Allahabad Bank and State Bank of India
to consider the proposals. The process of taking possession of the assets began
on 22-7-2001. On the same date, the court issued notices to all the officers
and Workers Union who were petitioners in Civil Misc. Writ Petition No. 1534 of
1998 decided on 8-12-1999, to assertion their views on the application (A-30)
filed by the State Government. On the next hearing the official liquidator
reported that possession of the units at district Mirzapur and Sonbhadra has
been taken. The District Magistrate, Mirzapur has accepted the supurdagi of the
assets. Mr. V.K.S. Chaudhary, Senior Advocate, appearing for the Allahabad Bank
submitted that he has not concluded his preliminary objection to the
application filed by the State Government. The State Bank of India reported that the consortium meeting had
not reached any decision and that the State Bank of India is not inclined towards the
offer of the State Government made to them through IDBI. An application was
filed by Bharatpur Nutritional Products Ltd. (Dalmia Industries Ltd.) for
staying the consideration of the application filed by the State Government for
sale of assets to Grasim Industries Ltd. On this Court observed that injunction
order dated 25-5-2001 directing that no sale or transfer of possession of
assets of the UPSCCL (including the mortgaged assets) will be made without the
leave of the Court making it clear that this injunction will not operate
against Recovery Officer of the DRT, if and when the claim of the bank is
decreed, was already operative. The Cement Workers Union filed an application
through counsel Sri Saumitra Singh supported by affidavit of Sri Laxmi Kant
Shukla, representing 15 unions a list of which was included with Vakalatnama.
It was found that notice to the employees and workers were dispatched only on
23-8-2001, and thus the matter was adjourned to 19-9-2001. Then the functioning
of this court was effected by prolonged strike of Advocates for 75 days, on the
issues of a bench in Western U,P. The Court, however, functioned and heard
matters, in which personal appearance were put by the litigants. The court has
held proceedings in this matter on 10-9-2001, 20-9-2001, 22-9-2001, 3-10-2001,
29-10-2001, 30-10-2001 and 5-11 -2001. In between the official liquidator
submitted his report Nos. 113, 114 and 115 of 2001 with regards to various
matters, including application of State Government to consider the offer made by
Grasim Industries Ltd. (report No. 114 of 2001), report No. 114 of 2001, was
filed in compliance of direction of the Court to find out the views of State
Government on possibility of sale of assets by advertising for exploring higher
offer made to the official liquidator and report No. 115 of 2001, for giving
direction to the District Magistrate, Principal of College, schools, hospitals,
employees, workers and officials to deposit the rent of the building occupied
by them giving authority to District Magistrate to realize the rent.
21. In pursuance of
the orders passed by this Court on 20-9-2001, the official liquidator submitted
his report No. 129 of 2001 in which the report to the Court that in response to
his letter dated 9-1-2001, sent to the State Government, he has been furnished
a reply by the Secretary, Industrial Development Department of Government of
U.P. by Fax Message dated 30-10-2001. In this reply the Government of U.P.
intimated that it does not support the move for re-tendering through official
liquidator due to the reasons, namely, (1) that it will unnecessarily delay the
revival of the unit through privatization; (2) idea is to transfer the unit
concern and not merely disposal of the assets; (3) there is no guarantee for
re-tendering through official liquidator will get a higher bid, and (4) that
other institutions have also to agree to this move, and that the reliefs and
concluding that the concessions offered by the Government of U.P. can remain
valid for the moves, only if the points mentioned above are taken care of. The
Court found that the submission of Sri Ashok Mehta, the learned Chief Standing
Counsel were not in consonance with the communication sent by the State
Government in writing to the official liquidator. The matter was pending since
17-5-2001, based on assumption that the Banks and financial institutions have
agreed to one time settlement which was one of the basic conditions of the
invitation of offer but inspite several adjournment the time the Banks did not
come out with any categorical statement with regard to one time settlement. In
the meantime the employees were facing several difficulties and complaints were
received with regard to water and electricity supply, transportation, staff of
schools, teachers, supply of essential drugs in hospitals. It was made clear
that the Government Officials are responsible to provide these facilities
inspite of the fact that the company had. been wound up, and that the citizens
of this country cannot be deprived of basic amenities on the ground that they
are employees the erstwhile wound up Government company. Serious concern was
expressed on the complaints against to executing officers, who trying to occupy
and to put the properties of the company (in liquidation) to be misused by removing
air-conditioners furnitures etc. from the offices and guest house buildings.
The standing counsel assured the Court that these complaints were looked into
by the State Government. On 22-11-2001, the chief standing counsel filed report
of Sri N.K. Agarwal and Associates, Kanpur with regard to revaluation of the
land, building, plant and machinery of the company (in liquidation).
22. The State Bank of
India filed application
giving terms of compromise on which the State Bank of India has agreed to accept
compromise proposal. The application was not supported by affidavit of any
officer of the bank and it was submitted that the matter is under consideration
with the Board of Director of State Bank of India. Adjournments were sought to
file an affidavit supported by approval of the Board of Directors of the Bank.
The Court directed that the copy of application filed by State Government shall
be circulated to the official liquidator and other financial institutions and
Allahabad Bank inviting their comments. The learned chief standing counsel was
directed to produce the entire record pertaining to invitation of offer and
acceptance of offer by the committee constituted by the State Government for
perusal of the Court. On 4-12-2001 an affidavit of Sri Hemant Bansal, Chief
Manager of State Bank of India, Ghosia, District Sant Ravidas Nagar was filed
confirming the contents of application filed on 29-11-2001 and stating that the
condition of settlement of the matter with the Bank are subject to the approval
by the Board of State Bank of India and it will take about two weeks time for
the Bank to consider the matter. The counsel appearing for the State Government
informed the Court that the Secretary Industrial Development has gone abroad
and is likely to return back on 6-12-2001 and thus the matter needs
re-examination of the proposal submitted by the State Government.
23. The arguments
were heard on 10-12-2001, 11-12-2001 and thereafter on 14-12-2001. Upon hearing
counsel for the State Government and after examining the record which contained
a note submitted to the cabinet for approval, the court found, that inspite of
all the departments of State Government including the Department of Finance,
Sales-Tax, Electricity and Law, opposed for the move of rehabilitation on the
ground that the departments shall not been able to bear any further financial
burden.
24. A copy of the
note put up before the cabinet was placed by the chief standing counsel and was
taken on record. A perusal of this note shows that it was prepared after
seeking comments of the Department of Law Industrial Development, Sales-Tax
Finance and Electricity. The Principal Secretary, Legal Remembrance, Government
of U.P. advised Government of that official liquidator has been appointed
through High Court and thus to remove his appointment proceedings should be
undertaken under Section 166 of the Companies Act, 1956, and only thereafter
according to proposed procedure, the assets of the UPSCCL can be transferred by
privatization. He put a query that there is no clarification as to how 254
acres of land and building at Chunar and 564 acres of land at Gurma is left
from sale, and it was proposed that the position should be made clear before
the cabinet and the decision of the cabinet be obtained. The tax department
proposed that if the rehabilitation is to be made by privatization the
department has no objection, to exempt the arrears of trade tax on 67.10
crores, but it did not agree for giving 10 years rehabilitation for trade tax
as grounds that before the date of approval by the High Court there is no
justification to give 10 years rehabilitation. A trade tax is an indirect tax
in which the seller collects the tax from purchaser and deposits in the
Government Treasury. This benefit will not be passed on to consumer public and
shall be confined to entrepreneur. It was recommended that such incentive is
against the agreement with the Central Government and will amount to giving
unlimited rights to a private entrepreneur which will exhaust the raw material
in the limited period. It found that at present all units are exempted from
trade tax on purchase of raw material, and thus the benefit of exemption on
finished product is not justified as it will also come in the way of
application of VAT system. Industrial Development Commissioner opposed the
exemption of arrears of trade tax and full exemption of 10 years on the ground
firstly that in the Chief Ministers meeting it was decided that no such benefit
will be given to any industry and if such benefit is extended the Central
Government may stop giving assistance to such State Government. Secondly, there
is no justification to give 10 years exemption from trade tax and from
registration fees as there may not be difficulty in selling unit without giving
such exemption. Thirdly he stated that exemption may discourage efficiency of
sale of cement in the State and that the amount of profit to the promoter which
shall not be estimated. He said that this profit can be somewhere between Rs.
300 to Rs. 3000 crores. According to him information regarding the maximum
production of cement has not been given by the Industrial Development
Department. According to trade tax and Registration Department this will be
upto a minimum of Rs. 250 crores in a year on which the promoter shall get
benefit of about 30 crores in a year and in 10 years which will amount to Rs.
300 crores, and in case the promoter is not put to any restriction on
expansion, they will not to dale 12 per cent, the objectivity price may
increase capacity after 10 times which will induce to other promoters to give
such exemption, and requested for clarification on certain issues, namely,
whether the exemption will apply only to finished goods and whether the
expansion of the capacity will be permitted. Many other querries were made with
a proposal that in case the promoters of UPSCCL are to be exempted, it will
require amendment on Trade Tax Act, forgiving such exemption to all the units
to be privatized by the State Government and suggested that a minimum exemption
should be fixed in rupees rather than period.
25. The Finance
Department in their comments observed that the State Government has already
taken a decision and communicated it to the BIFR and the Hon'ble Court that it cannot bear any
further financial liability in the unit. BIFR found that the rehabilitation is
not possible. Liquidator was appointed on the opinion from BIFR and thus it
will not be proper to obtain an order from the High Court for taking back the
property from official liquidator, and to offer it for privatization. It
commented that unless a proposal of rehabilitation is concerned for all assets
and the decision is taken at the highest level and the State Government takes
approval of BIFR, the application cannot be filed before the High Court. The
financial department made a significant comment on clause four of the note to
be submitted to the cabinet to consider to remove liquidator and to offer the
industry for privatization for seeking approval of the High Court. It did not
agree with the proposal on the ground, firstly that in the Chief Minister's
Conference. It was agreed that no such exemption is given to any industry. The
financial department, however, agreed with a note of Industrial Development
Commissioner to the extent that the proposal shall not have any effect on the
liquidation proceedings which may continue. The liquidator is required to find
out the purchasers of the assets of the company (in liq.) and that the State
Government may take responsibility of finding out the purchaser only to the
extent to put mineral assets of the State to their utilization, and for early
payment of the dues of the workers which may take a long time without putting
any liability or responsibility on the State Government.
26. U.P. Power
Corporation submitted its note informing that there is a liability of 110.70
crores to be paid by the company (in liq.) to U.P. Power Corporation. If the
unit is rehabilitated by privatization, it will put development of the capacity
of cement production and since the rate schedule for this industry is higher
than other category of consumer, it agreed in the interest of future
realizations, with the proposal to exempt the electricity dues of 110.70
crores, while putting forward to the difficult, to the effect that the financial
condition of the power corporation is unsatisfactory and thus it will not be
possible to give such exemption, and offered the only option that the dues to
be paid by the U.P. Power Corporation to the State Government be reduced to the
extent of the dues of the UPSCCL. The Electricity Department, in fact tried to
off set their liability to the State Government by reducing the amount of dues
to be paid by UPSCCL. It was pointed out that under the U.P. Electricity
Reforms Act there is no provision that exemption be given for any special
project, and that any assurance to the promoters may be offered for exemption
to be provided on electricity duty on the captive generation by the promoters
for a maximum period of five years.
27. The Court finds
that all the departments consulted, discouraged reliefs and concessions. Clause
4(iv) of the proposal put by the Principal Secretary and Industrial Development
Commissioner, provided that the liquidator be removed and the industrial
capacity be offered for privatization after obtaining the sanction from the
High Court. One of the factors taking into consideration was to effect that it
may take more than 20 years for the sale of the assets by the Liquidator
causing continuing losses to the assets of the corporation as well as dues of
the workmen.
28. A perusal of the
aforesaid note which was made part of the record, and it was stated to be
accepted by the cabinet, shows that the Principal Secretary and Industrial
Development Commissioner proposed the following reliefs to be given by the
State Government.
(i) Trade Tax
Rs. 67.10 crores
(ii) Limestone
Royalty
Rs. 20.10 crores
(iiii) Electricity
dues to UP Electricity Corporation
Rs. 110.70 crores
(iv) Working capital
given by the State Govt. to the Corporation as debt.
Rs. 65.80 crores
Rs. 363.70 crores
It proposes that new
promoters take guarantee for the following:
(i)
Arrears of wages,
provident fund, gratuity and retrenchment benefit (two weeks pay with every
year of service rendered)
Rs. 135 crores
(ii)
Payment of principal
amounts of Financial Institutions by OTS
Rs. 60 crores
Rs. 195 crores
It was further
proposed that 254 acres of land, building and factory at Churk and 564 acres of
land at Gurma will not form part of the assets for sale as limestones is not
available at these places and that its ownership will remain with the State
Government. It was found these assets is about Rs. 30 crores which can be used
for Government purposes and that its decision shall be taken by the State
Government separately.
29. The substance of
the proposal was to remove official liquidator and to offer the assets of the
company (in liq.) to a promoter by privatization after offering the reliefs and
concessions to the extent of 663.70 crores, by guarantee offer of only 195
crores and by excluding 254 acres land building and factory at Churk and 564
acres at Gurma valued at about 30 crores. Further reliefs and concessions
offered were ten years exemption from trade tax, supply of electricity for 3
years on fix electricity tariff exemption on electricity duty on captive power
generation and peaceful possession of unit to the new promoters.
30. Section 466 of
the Companies Act, which is quoted as below :
"Section 466.
Power of Court to Stay winding up.--(1) The Court may at any time after making
a winding up order, on the application either of the Official Liquidator or of
any creditor or contributory, and on proof to the satisfaction of the Court
that all proceedings in relation to the winding up ought to be stayed, make an
order staying the proceedings either altogether or for a limited time, on such
terms and conditions as the Court thinks fit.
(2) On any
application under this section, the Court may, before making an order, require
the Official Liquidator to furnish to the Court a report with respect to any
facts or matters which are in his opinion relevant to the application.
(3) A copy of every
order made under this section shall forthwith be forwarded by the company, or
otherwise as may be prescribed to the Registrar who shall make a minute of the
order in his books relating to the company."
31. The Principal
Secretary and Legal Remembrancer UP had advised to adopt procedure under
Section 446 of the Act. Instead of applying under Section 466 of the Companies
Act for standing liquidation to consider the proposed rehabilitation of the
unit the State Government has made an application to this Court, after inviting
the offers for consideration of the sale of the unit to the only offered Grasim
Industries Ltd.
32. The State
Government, therefore, against all opposition from all its department accepted
recommendation of the Principal Secretary and Industrial Development
Commissioner to invite offers for sale of the unit as a going concern. During
the course of arguments it was repeatedly put to the Advocate General who
appeared on second and third January, 2002, to support the application whether
the State Government is making its submissions in support of the prayer under
Section 466 or it is making an application to assist the official liquidator in
sale of the assets. After seeking instructions, Sri R.P. Goel, Advocate
General, made a categorical statement that he does not propose to press Section
466 in support of his application and that it should be treated an application
to assist the official liquidator in disposal of assets under Section 457 of
the Companies Act, 1956.
Before the Court
considered the merits of the application (A-30) filed by the State Government
in the aforesaid background, it is necessary to consider the objection of the
Allahabad Bank.
33. Allahabad Bank is
a secured creditor and that all the assets of the Corporation, have been
mortgaged and hypothecated with Allahabad Bank on 22-6-2001. It filed a claim
petition against the company (in liq.) and its guarantor on 22-4-1999 for
recovery of Rs. 87,15,71,259.72 calculated on date before the Debt Recovery
Tribunal, Jabalpur as Original Application No. 149 of 1999 which has been
transferred to the Debt Recovery Tribunal at Allahabad and has been registered
as Transfer Application No. 1464 of 2000 between Allahabad Bank v.U.P. State
Cement Corporation. An injunction application filed by the Allahabad Bank on
26-2-2000 is still pending. It has objected to the application filed by the
State Government and has prayed that the application may be dismissed with
cost. The State Bank of India has filed application (A-44) dated 12-7-2001 with
the same prayer to dismiss application filed by the State Government of sale of
assets of the company (in liq.) to Grasim Industries Ltd. on the ground that
the applicant being a secured creditor has first charged over all the assets of
the company (in liq.) and that the sale proceeds receive therefrom are liable
to be adjusted towards the dues of the State Bank of India. It is submitted in
the application that the State Bank of India along with the Industrial
Development Bank of India, Industrial Finance Corporation of India, Industrial
Credit and Investment Corporation of India Ltd., Life Insurance Corporation of
India Ltd. and Allahabad Bank granted a term of Rs. 4700 lacs in a consortium
of the company (in liq.). Share of each member of the consortium has been
detailed as below:
(i) IDBI
Rs. 230 lacs
(ii) IFCI
Rs. 300 lacs
(iii) ICICI
Rs. 400 lacs
(iv) LIC
Rs. 700 lacs
(v) State Bank of India
Rs. 500 lacs
(vi) Allahabad Bank
Rs. 500 lacs
Total
Rs. 4700 lacs
34, A joint mortgage
was created as security towards the aforesaid term loan in respect of the fixed
assets of the company (in liq.) in favour of the aforesaid financial
institutions and bank on pan passu basis and joint security documents were
executed between the borrowers and the creditors. First charge was created over
all the hypothecated movable asserts present and future including uncalled
capital of the company (in liq.) in favour of State Bank of India by executing the agreement
dated 31-3-1981. A general power of attorney in favour of the State Bank
authorizing to transfer the assets of the company (in liq.) in addition to
above term loan facility, to grant working capital loan the State Bank along
with Allahabad Bank formed a consortium for the said purpose on execution of an
inter se agreement dated 18-3-1991 executed between the said two banks which
were supplemented by an additional agreement dated 1-12-1992. Following credit
facilities were granted towards the working capital against hypothecation
namely, stocks of raw material, stocks in process, semi-finished and finished
goods, stores and spares bills receivable and book debts and all other movables
both present and future :
(i)
Cash credit
hypothecation Ltd.
Rs. 250
(ii)
Letter of credit
Rs. 195 lacs
(iii)
Bank guarantee limit
Rs. 55 lacs
Total
Rs. 500 lacs
A working capital
consortium agreement dated 18-3-1991, Joint Deed of hypothecation dated
18-3-1991 creating the first charge on all the movable assets of the company as
specified in the schedule, was executed. The charge over the fixed and current
assets of the company was registered in the office of the company in respect of
term loan facility and working capital facilities separately. The application
has enclosed the aforesaid documents. The agreement dated 31-3-1981 power of
attorney agreement between the Banks dated 18-3-1991 and supplementary
agreement dated 1-12-1992 working capital consortium agreement dated 18-3-1991,
a joint deed hypothecation certificate dated 18-3-1991 and the charge
certificate issued by the registrar of the company. The title deeds of the
company were deposited with the Industrial Development Bank of India
which was the lead Bank by way of equitable mortgage. A declaration and
undertakingdated 8-5-1994 has also been given by the company regarding joint
mortgage. The Government of U.P. guaranteed the above loan by its letter dated
22-10-1980 and 23-12-1991 and also executed guaranteed agreement dated 23-12-1991.
To secure credit facilities towards the working capital a second charge over
all the immovable properties mortgaged in favour of the State Bank of India
and other members of consortium under term loan was also created. After the
company (in liq.) was unable to pay its dues and BIFR recommended for winding
up of the company and the company was recommended for winding up the State Bank
of India filed an application for Rs. 62,68,50,394.53 with pendente lite and
future interest at the rate of 17.75 per cent p.a. with quarterly rests before
the Debt Recovery Tribunal at Jabalpur which was registered as O.A. No. 249 of
1999 and was transferred and is pending before the Debt Recovery Tribunal at
Allahabad. It is alleged that the total dues of State Bank of India as on 30-6-2001 comes to Rs.
69.48 crores approximately. The State Bank of India has stated that before
inviting the offers for sale the State Bank did not consult with the Bank. Both
Allahabad Bank and State Bank of India have submitted that the
provisions of Recovery of Debts Due to the Banks and Financial Institutions
Act, 1993, override the provisions of the Companies Act, 1956. Sections 17 and
25 of the Act confer exclusive jurisdiction in respect to claim and execution
of the Final order of the Tribunal and of the Recovery Officer in respect of
the debts payable to the Bank and that the Company Court cannot interfere in respect
of the debts due to the bank pending before Debt Recovery Tribunal, Allahabad. It is further
submitted that the State Government is not entitled to sell the assets of the
company to any purchaser or sale proceeds be deposited in the account of the
State Bank towards the liquidation of its dues, failing which the bank will
suffer irreparable loss and injury. In the statement of affairs under Section
454 of the Companies Act, the Directors of the Company (in liq.) have admitted
liability of Rs. 258.75 crores to financial institutions and bank and Rs.
106.64 crores towards the dues of employees whereas the total assets of the
company (in liq.) have been stated to be worth Rs. 330.42 crores.
35. Sri Ashok Mehta,
Chief Standing Counsel appearing for the State Government submits that in the
present case winding up proceedings are being taken under Section 20 of the
Sick Industrial Companies (Special Provisions) Act, 1985 read with Companies
Act, 1956. The virus of the Sick Industrial Companies (Special Provisions) Act,
1985 has been upheld by Madras High Court as well as Supreme Court in J.M. Malhotra v. Union Bank of India [1997] 89 Comp. Cas. 600 (Mad.) and V.R. Ramaraju v. Union of India [1997] 89 Comp. Cas. 609 (SC). Section 34(2) of the Recovery of Dues to
the Banks and Financial Institutions Act, 1993 provides that the provisions of
the Act shall be in addition to and not in derogation of the Sick Industrial
Companies (Special Provisions) Act, 1985 in the case of Allahabad Bank v. Canara Bank AIR 2000 SC, 1535, the Court has taken into consideration the contention
that Section 34(1) give over-riding effect to the provisions of the Act as
provided in Section 34(2) amended by Ordinance No. 1/2000, proceedings saves
only six statutes from the purview of Section 34(1), The Companies Act, 1956 is
not one of them. It is submitted that the judgment in Allahabad Bank's case
(supra) is not applicable in the proceedings arising out of Sick Industrial
Companies (Special Provisions) Act, 1985. And that since the present
proceedings of winding up are under Section 20(2) of the Act of 1985 read with
Companies Act, 1956, the ratio of the judgment is not applicable. In the
alternative it is submitted that the Act of 1993 gives jurisdiction to decide
for recovery of their debts and that the Tribunal cannot pass any winding up
order or take proceedings to liquidate the company, and thus winding up
proceedings and any exclusion can only be proceeded with in accordance with the
Companies Act, 1958. The Recovery Officer under 1993 Act may apply to the Court
in whose custody (including Company
Court) the money belonging to defendants for
payment in accordance with Act of 1993 is available and thus proceedings for
sale of assets, under the Companies Act are not barred by the aforesaid Special
Acts.
Both Sri V.K.S.
Chaudhary appearing for the Allahabad Bank and Sri Ashok Mehta, Chief Standing
Counsel appearing for the State Government, have both relied upon Allahabad
Bank's case (supra) in support of their contention. In the said case the
dispute was between two nationalized banks. Allahabad Bank had obtained a money
decree against M.S. Shoes (East) Co. Ltd. from the Debts Recovery Tribunal and
Canara Bank's claim as a secured creditor was pending before same Tribunal and
against the same company. The Company Judge acts exercising of power under
Sections 442 and 537 of the Companies Act in a winding up petition by Ranbaxy
Ltd. stayed the sale proceedings taken out by Allahabad Bank before the
Recovery Officer under 1993 Act. The applications for winding up were pending,
and no winding up order had been passed, nor any provisional liquidator was
appointed as contemplated by Section 446(1). It was submitted by the Canara
Bank that Allahabad Bank is to seek leave of the Court under Companies Act,
1956, and that the Company Court can stay and proceedings under Sections 442
and 537 for the purpose of deciding the priorities in the even of a winding up
order, or other order appointing a provisional liquidator being passed under
Section 446(1) of the Companies Act, 1956. After the decree in favour of
Allahabad Bank, some properties of the company were sold by the Recovery
Officer and it was contended that the Tribunal can deal with the appropriation
of sale proceeds in respect of sales of the company properties on the question
of Allahabad Bank and that the appellate atone is entitled to all the sums so
realized. The Supreme Court after dealing with the arguments and going through
the provisions and inter-relation to both the acts namely the Companies Act,
1956, Recovery of Debts due to Bank and Financial Institution Act, 1993, held
that the jurisdiction of the Tribunal with regard to adjudication under 1993
Act is exclusive. After the liability of the defendant is adjudicated, it has
to issue certificate under Section 19(22). Section 18 of the Act ousts the
jurisdiction of any other court of authority which would otherwise have had
jurisdiction but for the provisions of the Act. The exclusion does not apply to
the jurisdiction of the Supreme Court or of the High Court under article
226/227 of the Constitution of India. The provision of Section 34(1) of 1993
over-rides other laws to the extent of inconsistency and thus prescription of
an exclusive Tribunal both for adjudication is a procedure clearly inconsistent
with realization of these debts in any other manner. No other court of
authority muchless Civil Court or the Company
Court can go into these question namely
adjudication of the liability of the defendant and the execution of the decree.
The Supreme Court held in para 50 that at the stage of adjudication under
Section 17, and execution of the certificate under Section 25, the provisions
of the RDB Act, 1993 confer exclusive jurisdiction on the Tribunal and the Recovery
Officer in respect of debts payable to bank and financial institutions and
there can be no interference by the Company Court under Section 442 read with
Section 537 or under Section 446 of the Companies Act, 1956. In respect of the
monies realized under the RDB Act, the question of priorities among the banks
and financial institutions and other creditors can be decided only by the
Tribunal under Act of 1993, in accordance with Section 19(19) read with Section
529A of the Companies Act and in no other manner. The provisions of the RDB
Act, 1993 are to the said extent inconsistent with the provisions of the
Companies Act, 1956, and the latter Act has to yield to the provisions of the
former. This position holds goods during the pendency of the winding up
petition against the debtor Company and also after a winding up order is
passed. No leave of the Company
Court is necessary for initiating or continuing
the proceeding under the Act of 1993.
36. The Supreme Court
considered the distribution of money to be done by the Tribunal and whether the
provisions of Section 73, C.P.C. and Section 529(1) and (2) and Section 530
court also apply apart from Section 529A to the proceedings before the Tribunal
under the Act of 1993, and whether in view of provisions of Section 19(2) and
19(1) as introduced by Ordinance 1 of 2000 the Tribunal can permit Allahabad
Bank to appropriate the entire sale proceeds realized to the limited extent
restricted by Section 529A. It also examined whether secured creditor like the
Canara Bank which had not yet got decree in its favour could claim under
Section 19(19) any part of the realization made by the Recovery Officer,
difference between the cases were the secured creditors opts to stand outside
the winding up and where he goes before the Company Court. It was held that in
respect of such realization there are two class of secured creditors namely
those who desire to go before the Company
Court, and those who would like to stand outside
the winding up. The first category of secured creditors who by relinquishing
their security in accordance with the insolvency rules under Section 529, go
before the official liquidator to prove their debts, and in that event rank
with unsecured creditors. The other class of creditors are those secured creditors
who stands outside the winding up to realize their security. These creditors in
certain circumstances can go before the Company Court or Tribunal and claim
priority overall other creditors for realization of their money, like in the Company Court. This
limited priority declared in Section 529A(1) is restricted only to the extent
specified in Clause (b) of Section 529A(1) i.e., confined to the workmen's
portion as defined in Section 529(3)(c), and to that extent such secured
creditors who stands outside winding up can come up before the Tribunal and
claim priority over all creditors, by virtue of Section 529A(1)(b). Supreme
Court found that the Canara Bank has not made it clear whether it wants to come
in the category of those creditors who wants to remain outside the winding up.
The Canara Bank had not obtained any decree and thus it could not claim any
defence at that stage.
37. In a winding up
petition an official liquidator was appointed and had taken custody of the
assets of the company after preparing an inventory in the presence of secured
creditors on an application filed by some other Bank claiming to be secured
creditor before the Debt Recovery Tribunal, an Advocate Commissioner was
appointed who required the official liquidator to appear before him and upon
his failure moved before the Tribunal on which an order was passed by the
Tribunal directing the Advocate Commissioner to take inventory of the company
assets and in case of non-cooperation by the official liquidator to take
assistance of the police to break open the locks.
The official
liquidator filed an application on which the company referred the matter to a
Division Bench. It was held in this case by Andhra Pradesh High Court in Pannar
Paterson Limited v. State Bank of Hyderabad [2001] 106 Comp. Cas, 338 that by
reason of Section 456, a legal fiction is created by the deeming provision
contained in Section 456, and the assets of the company are under custody of
the Court from the date of the order of the winding up of the company. The Debt
Recovery Tribunal may have exclusive jurisdiction for adjudication and
execution but it is another thing to say that such jurisdiction has to be
exercised in a particular manner. Although the Tribunal has jurisdiction to be
exercised having regard to the provisions laid down therein, the Tribunal is
subject to the supervisory jurisdiction of the Court. The jurisdiction of the
Tribunal for adjudication and the right of execution as against the Company Court has
been determined between Allahabad Bank v. Canara
Bank but not the mode of recovery. The mode and manner
laid down for recovery of the debts due to banking or financial institutions
must be adhered to having regard to the provisions contained in Rule 31 of the
second schedule to the Income-tax Act, 1961. Even otherwise when the property
is in custody, leave of the Court having plenary jurisdiction, keeping in view
of the principles adumbrated in order 40 of C.P.C. must be obtained and that
such leave was also necessary having regard to Section 10 of the Companies Act,
1956, and in particular the fact that the High Court exercised power of
supervision under article 227 of the Constitution of India over its Tribunal
and thus the Advocate Commissioner was required to obtain leave of the Company
Court. Chief Justice Satyabrate Sinha speaking for the bench of Andhra Pradesh
High Court, held that the judgment in Allahabad Bank v. Canara Bank was not the authority for the proposition for which the Court was
concerned in that case held as follows :
"The liquidator
or a provisional liquidator as the case may be is directed to take in to his
custody or under the control the property, effects and actionable claims, as
the company is not appears to be entitled to by reason of the provisions
contained in Section 456, there cannot be any doubt whatsoever that the leave
of the Court must be obtained."
38. In the present
case we are concerned with the facts that the company (in liq.) was wound up on
8-12-1999 and that the official liquidator attached to this Court has been
appointed and is functioning as liquidator of the company. Allahabad Bank and
State Bank of India are
secured creditors and both these banks have filed their claim petitions against
the company (in liq.) which are pending before the Debt Recovery Tribunal, Allahabad. Their claims
have not been adjudicated so far. Both these banks have not exercised their
option to remain out side the winding up proceedings. The Debt Recovery
Tribunal have exclusive jurisdiction under Act of 1993 for adjudication and
thereafter recovery of such adjudicated amount and that the leave of the Court
is not required to continue either for adjudication or recovery. The official liquidator
is, however, not required to wait. He can proceed with the sale of the assets
of the company under Section 457(1)(c), with approval of Court. There is no
statutory bar or restriction applicable to the official liquidator under the
provisions of the Recovery of Debts due to the Bank and Financial Institutions
Act, 1993 with regard to exercise of powers by liquidator over the property of
the company which are under the custody of the company Court under Section 456.
It is submitted on
behalf of the Allahabad Bank, that the Companies Act, 1956 has not been
mentioned in Sub-section (2) of Section 34 and thus the Act of 1993 shall have
overriding effect over the provisions of the Companies Act, 1956. This
submission has been accepted in Allahabad Bank v. Canara Bank, only to the extent that for the purposes of adjudication and recovery
by the Tribunal. In such cases, the provisions of the Companies Act, 1956 shall
be applicable only to the extent of Sections 529, 529A and 530. The Act of 1993
is a Special Act as against the Companies Act, 1956, only so far as the
adjudication and execution of such decree is concerned. It does not over ride
the provisions of the Companies Act, 1956 for all other purposes. The claims of
Allahabad Bank and State Bank of India have not been adjudicated so
far, and thus the sale of assets to be made by the official liquidator under
Section 457(1)(c), shall not in any manner be inconsistent with or effect the
right of adjudication of the claims of the Banks. In case the assets are sold,
the Bank shall have right over the monies realized in accordance with the
provisions of the Companies Act, 1956. The Banks, therefore, do no have a right
at this stage to object to the sale of the assets of the company (in
liquidation) and thus the application filed by Allahabad Bank, (A-31) and the
application of State Bank of India (A-44) have no force and are rejected.
39. The next question
to be considered by this Court is the application of the State Bank to consider
the offer of Grasim Industries Ltd. made to the State Government in pursuance
of its invitation for offer without associating the official liquidator. The
State Government was a promoter and hold entire share capital of the company. It
has not been able to run the company for the reasons disclosed in detail in the
affidavit of Sri K.L. Meena (A-13). The company (in liq.) had accumulated loss
of Rs. 160.13 crores on 31-9-1997 which increased to 448.85 as on 31-3-1998.
The efforts made by BIFR for revival of the company by preparation of a scheme
to be formulated by the Operating Agency or through workmen could not
materialize. An advertisement for change of management issued on 6/8-3-1996
also failed for want of firm commitment form the State Government. The State
Government caused delay at every stage. The State Government did not even avail
the last opportunity given by the Board on 26-9-1996 to submit their financial
proposals to the Board by 7-11-1996 and after having explored all possibility
of rehabilitation, the Board formed an opinion to wind up the company. During
the pendency of the winding up proceedings the State Government raised
objection to the application by the workmen to explore the possibilities of
revival and rehabilitation. In the Counter Affidavit of Sri K.L. Meena, Special
Secretary, Industrial Development Department, Government of U.P. filed in the
year 1998, it was denied that there is any possibility of rehabilitation. The
Government denied that there were any surplus assets free from encumbrances and
specifically stated that the State Government is not in a position to further
invest huge amount to make any scheme viable. Sri K.L. Meena, Special
Secretary, Industrial Development Department, Government of U.P. categorically
stated in para 76 of the affidavit filed in 1998 that the Slate Government had
communicated to the Board about decision of not being in a position to invest
huge amount of thousands crores of rupees, proposed by the Operating Agency and
that the decision of the State Government has never been reversed.
40. The State
Government was also aware that the company has been wound up and that all its
assets are deemed to be in possession of the Court. All the departments of the
State Government opposed the sale and for providing exemptions or creating any
further liabilities. The opinion given by the legal department was also not in
favour of sale of the assets, but to file an application under Section 466 of
the Companies Act for rehabilitation. The proposal to the cabinet was based on
a consideration that the official liquidator is unable to dissolve companies in
liquidation for decades, and it takes more than twenty years to sell the assets
of the company during which the workers suffered irreparable hardship. This
consideration had no basis whatsoever. The State Government had no material to
form such an opinion. The official liquidator attached to the Court has been
selling the assets and dissolving the companies in accordance with the
provisions of the Companies Act, 1956 and that average period in dissolving a
company is not more than two to three years. In the circumstances the Court has
every reason to believe that the entire foundation of an anxiety for sale of
assets was misplaced and was not supported by any material collected and placed
on record.
41. Under Section
457(1)(c) the Liquidator has powers, with the sanction of the Court, to sell
the movable and immovable property and actionable claims of the company by
public auction or private contract, with power to transfer the whole thereof to
any person or body corporate, or to sell the same in parcels. The assets can be
sold either as a whole or in parcels. The Court can also explore to sell the
assets of the unit as going concern in the interest of the workmen and also to
put the resources of the State to re-sale for its optimum utilization. The
counsel for the State Government cited Allahabad Bank's case (supra) in support
of submissions that an opportunity should be given for selling the unit as a
going concern. In the said case the company was wound up on 14-6-1990 and that
the order had become final. The company was non-functional for long and that
the special leave petition filed by workers union was also dismissed on
5-12-1997. The Supreme Court in order to give a last try to the found hopes
expressed on behalf of the erstwhile workers, gave one more chance within a
strict frame of time limit, subject to certain conditions. The official
liquidator was directed to proceed with the sale of the assets of the company,
firstly by selling plant, machinery and other movables, and thereafter other
assets in such a manner to fetch the maximum price, keeping in view the
interest of all the creditors.
42. Sri R.P. Goel,
Advocate General, pressed the application filed by the State of U.P. for considering the
sale of the assets to Grasim Industries Ltd. It is submitted by him that the
State Government keeping the interest of workmen and optimum utilization of its
natural wealth, initiated the process of sale of assets as going concern by
privatization, after obtaining approval from the cabinet, and advertisements
were issued in the daily newspaper, a result of which only one valid proposal
was received from Grasim Industries Ltd. It was considered by High Powered
Committee. Part 1 of the bid of Rs. 195 crores covers the secured creditors and
workmen, Rs. 11 crores was offered as Part II of the bid, and upon negotiation
has also agreed to pay Rs. 35 crores towards VRS of the employees of the
company (in liq.). The Advocate General agrees that the exercise should have
been made by the official liquidator, who has been appointed as the liquidator
of the company, after seeking approval from the High Court, but the State
Government in right earnest, in public interest made advertisement and have
received an offer which complies with the requirements of the Committee for
sale, with intentions to avoid further delay for sale of the assets of the
company (in liq.).
43. I have already
disposed of the objections of Allahabad Bank, State Bank of India to the application of the
State Government in the preceding part of this order. Two more objections have
been received first by Bharatpur Nutritional Products Limited (formerly known
as Dalmia Industries Ltd.) vide application No. 79609 of 2001. It is submitted
in February, 1991, on account of recurring loss suffered by company (in liq.),
the State Government took a decision to privatize the corporation, and
accordingly a memorandum of understanding was incorporated into between
Government of U.P. and Dalmia Industries Ltd. on 14-2-1991 under which the
Dalmia Industries Ltd. and its nominated company were to purchase 51 per cent
shares of the company (in liq.) and take over the management of the corporation
with all its assets and liabilities, on as is where is basis. In pursuance to
the said arrangement a meeting of the Board of Director of the company (in
liq.) was held on 7-3-1991 in which it was resolved to transfer only 49 per
cent shares against the agreed transfer of 51 per cent. Accordingly 49 per cent
share was transferred to Dalmia Industries and is nominated company and same
were duly registered and recorded in the register of members. Against the
agreed deal between the Government of U.P. and the Dalmia Industries Ltd. U.P.,
State Cement Corporation (Acquisition of shares) Ordinance, 1991 was
promulgated taking over the share transferred or agreed to be transferred to
Dalmia Industries Ltd. and its nominated company. Subsequently a reference was
made under Section 15(1) of the Sick Industries Company (Special Provisions)
Act, 1985 and the company (in liquidation) was declared sick on 7-10-1992. The
floor price set by the Government for sale in the tender notice dated 20-2-2001
was for Rs. 195 crores. The applicant company or the buyers did not submit
offers as the tender notice was bad and illegal. The official liquidator is the
only person who has right and power to liquidate under the aegis of the Court.
The tender notice was published without involving the official liquidator and
taking prior permission of the court. It has further been stated that the offer
of Grasim Industries Ltd. with number of exemptions, concessions and right offs
is being accepted by the State Government causing stupendous losses to the
State exchequer and that the process employed by the Government to sell the
assets of the company (in liq.) is vitiated by arbitrariness, unfairness,
illegality and wednesbury, unreasonableness. The floor price was to be used
only for setting dues of the workmen and creditors, whereas the monetary value
of the proposed sale by the Government for assets as well as concessions shows
complete lack of commercial viability. According to the objector, the installed
capacity of cement plants is Rs. 2.57 million tones, and that the cost of
setting up new plant of the said installed capacity, is around Rs. 1300 crores,
i.e., at the rate of Rs. Five thousand per metric tone, what is needed in the
present old plant is only some repairs and modernization costing rupees two
hundred crores. On making deductions on account of such repairs and
modernization of the worth of the present plant is about Rs. 11000 crores. The
entire share capital of the company (in Liq.) is about 70 crores. Apart from
the plants, lime stone lease at Ninga and Kajrahat having over 100 millions
tones limestone deposits adjacent to the factory site. The apart, all he
properties of the corporation have also been included in the offer. The actual
worth of the plants can also be gauged from the fact that (1) company (in Liq.)
has larges installed capacity (2) strategic advantages of corporation included
proximity to limestone deposits at Kajrahat, Ghurma, Rohtas and that markets
lie on the forwarded direction via Chunar (3) mining lease have limestone
deposits of over 100 million tones. (4) The units are located in the region
which is a major market is eastern U.P. and Bihar,
for cement and there is no other major cement plant in the region. (5) The
units at Dalla and Chunar are well linked by roads and railways. The nearest
airport is at Varanasi.
Varanasi is 40
Kms. from Chunar and 120 Kms from Dalla accessed by a well maintained Varanasi Shakti Nagar Highway.
The nearest major railway station is at Chopan about 8 Kms. from Dalla and is
linked by Nilanchal Express with New Delhi and by Triveni Express with Lucknow
and (6) in addition to Kajrahat, for which the lease rights are proposed to be
transferred, the area has additional 225 million tones of limestone reserves in
Rohtas limestone mines.
44. According to
objector the reliefs and concessions granted in the offer which were not
available earlier concerning past liabilities of the plants have a considerable
impact almost to the tune of Rs. 800 crores on the state Exchequer which
include electricity dues of about 110.70 crores, Trade Tax dues of Rs. 76.10
crores, Royalty dues on limestone of Rs. 20.10 crores. Government loans of Rs.
165.80 crores. Loans from financial institutions/banks along with interest of
Rs. 289.62 crores, working capital loans Rs. 4.65 crores. Salaries and wages of
the workers Rs. 106.64 crores and that is the official liquidator was required
to liquidate the assets they would have costed the purchaser more than 1000
crores. In the present offer the State is hardly getting anything. According to
objector the cost of bid concessions will put a burden of about Rs. 900 crores
on the State Exchequer and this has been quantified by following trade tax
exemption for 10 years (Rs. 70 crores per year) worked out on the basis of tax
at the rate of Rs. 300 per ton and Waiver of royalty dues for 10 years and
other benefits like renewing the limestone lease and electricity duty
exemptions on captive power generation. It is submitted that an advertisement
should have been published in India
and abroad for inviting objections, after consulting and involvement of the
official liquidator attached to this Court.
45. The
applicant-objector has brought about the objections which are relevant for
consideration, but have not shown or indicated their interest in purchasing the
assets. The reasons given by them that the sale was not made by the official
liquidator after seeking approval from the High Court cannot be said to be
sufficient reason for not making an offer.
46. The workmen
appearing through Sri Saumitra Singh have filed application to the effect that
the offer of Grasim Industries Ltd. be considered favourably to avoid any delay
in the matter of sale of the assets. The application filed on behalf of the
CITU and 15 others supported by affidavit of Harendra Kumar Pandey have brought
on record the number of unions, number of workers/employees per unit the period
for which they have not been paid, wages structure, pay in the revised
pay-scale, actual number of workmen from the date till which they employed with
the corporation and the loan agreement with IDBI and State Bank of India. There
are about 37 workers unions in the corporation. Out of these unions sixteen
were petitioners in writ petition No. 15134 of 1998. There were about 5143 employees
on roll in the company (in liq.) till 13-7-1998, and details giving number of
employees grade-wise and designation-wise has been annexed to the supplementary
affidavit. Apart from the aforesaid there are about 350 employees who have not
been paid their retirement benefits after their retirement prior to 13-7-1998.
The total number of employees to whom the dues are payable are approximately
5500. It has been submitted that majority of the employees have been paid their
salary upto 12-7-1998. The retirement and statutory benefits to some of the
existing and retired employees, retired prior to 12-7-1998 have not been paid.
Certain employees have been paid their salary after 12-7-1998 on account of
Court Orders. The Managing Director has been paid his salary upto 8-12-1997.
Majority of the employees of the inter College at Churk and Dalla are being
paid their salary by the State Government, Banks. Under a Scheme known as
Gujarat Module, for VRS the employees are getting 45 days wages of each year on
completed service of balance period (in terms of months) whichever is lower. A
copy of VRS scheme as introduced in UPSMDC has been enclosed to the
supplementary affidavit.
47. The counsel for
the workers submitted that assets may be considered for sale as a going concern
for the benefit of employment of the workmen, and that any decision in this
regard must be taken as expeditiously as possible.
48. After winding a
company under Companies Act, either as creditors winding up petition under
Section 443 of the Companies Act or in pursuance of the opinion received from
the Board for Industrial and Finance reconstruction under Section 20(1) of Sick
Industries (Special Provisions) Act, 1985, which also includes just and
equitable cause, the official liquidator may be appointed as liquidator of the
company under Section 449 of the Companies Act and after having received
possession of the assets and statement of affairs, he is required to sell the
movable and immovable property and actionable scheme of property to be auctioned.
He holds property in
trust for the creditors, workmen and shareholders to realize debts of the
company institution or defend the suit prosecution or other legal proceedings
or to carry on business of the companies far as may necessary for the initiation
of winding up of the company. He has been given all power under Section 457(2)
given in the name of and on behalf of the company and has powered under Section
453 to exercise all his power on the subject to the control of the Court. Once
the Court has accepted the opinion of the BIFR that the company is insolvent
and is unable to make its net worth positive while meeting all liabilities it
is in the interest of all the creditors, workman and shareholders that the
assets of the company be sold as early as possible. It is also in public
interest to sell the assets so as to save the increasing financial burden on
the nonproductive assets and further to save and utilize the natural resources.
In the present case the company has been wound up and the order of the winding
up of the company has been wound up and the order of the winding up of the
company has been upheld upto the Supreme Court. The State Government and all
concerned have admitted that there is no possibility of its commercial revival,
without reliefs and concessions by the State Government. The BIFR made all
attempts to persuade the State to revive but the State Government was not ready
to accept any further liability.
49. Rules 172 to 274
of the Companies (Court) Rules, 1959, made by Supreme Court of India, in
constitution with High Courts, under Section 643(1) and (2) of Companies Act,
1956 provide for sale by official liquidator in exercise of his power under
Section 457(1)(c) of the Act. Rule 272 and Rule 273 is quoted as below :
"272. Sale to be
subject to sanction and to confirmation by Court.--Unless the Court otherwise
orders, no property belonging to company which is being wound-up by the Court
shall be sold by the Official Liquidator without the previous sanction of the
Court, and every sale shall be subject to confirmation by the Court."
"273. Procedure
at Sale.--Every sale shall be held by the Official Liquidator, or, if the Judge
shall so direct, by an agent or an auctioneer approved by the Court, and
subject to such terms and conditions, if any as may be approved by the Court.
All sales shall be made by public auction or by inviting sealed tenders or in
such manners as the Court may direct."
50. The Court is
considering the application of the State Government for sale to Grasim
Industries Ltd. and is unable to accept the request for the following reasons:
(1) The State
Government was advised by all its department that it is not feasible to bear
any financial burden by selling the unit as on going concern by privatization
after offering any relief and concession. Clause-4 of the note put up to the
cabinet, which was approved by the cabinet, in terms, recommended to offer the
unit for sale as a going concern by privatization, after removing the official
liquidator. The cabinet approved the recommendation in terms of said clause.
The acceptance of this proposal could only result into an application under
Section 466 of the Companies Act for standing of winding up. There was no other
way to offer the unit for sale by removing the official liquidator. However the
acceptance of this proposal was not implemented in its term. The State
Government acting contrary to the acceptance of the proposal of the cabinet
advertised the unit for sale by inviting offers without approaching the Court
for staying the proceeding for winding up and to remove the official
liquidator. In invited offers accepted the tender and thereafter made a request
to the Court to consider the offer by way of assisting the Court in finding out
a purchaser for sale of unit. The Court further finds that the aforesaid
cabinet decision was arrived on considerations, which cannot be fully
justified. These can be summarized as below:
(a) It was based on a
consideration that the Official Liquidator will take more than twenty years to
sell the assets. This advice was not based on any material or collection of
data, and, in fact, the Official Liquidator U.P. has a record of selling assets
of the Company (in liq.) at a much faster schedule of time.
(b) All the
department of State Government, namely, Finance Trade Tax, U.P. Power
Corporation etc. advised the state Government not to sell the properties as
going concern by offering any reliefs and concessions.
(c) It was objected
to by the Trade Tax Department and Finance Department that conference of the
Chief Ministers had agreed not to offer any tax concession to any entrepreneurs
being causing financial burden and in case of any breach, the Central
Government may stop giving financial aid to the State Government.
(d) The Law
Department clearly advised that such an action can only be taken under Section
466 of the Companies Act by applying for say of winding up by adopting process
of rehabilitation, and not through sale of assets as going concern.
(2) The first part of
the bid of Rs. 195 Crores was based on the consideration namely that is
workman's dues have been finalized up to date of winding up order and that the
financial institutions and the Bank have entered into one time settlement by
accepting only the principal amount towards their outstanding dues. The Court
finds that workers dues were not calculated and that the official liquidator
has reported that these figures are still being processed. The Allahabad Bank
has been seriously objected a sale of the assets of the company (in liq.) and is
pressing a suit of recovery of Rs. 87,15,71,259.32 crores the State Bank of
India has also filed a suit for recovery of Rs. 62,68,50,394.53 crores. These
suits are pending before the Debt Recovery Tribunal at Allahabad.
51. The projection
made by the State Government for the payment of principle amount financial
institutions by one time settlement to be only Rs. 60 crores was based only
upon a letter written to IDBI, the leading financial institution, under
consortium agreement, to consider one time settlement. Inspite of the offer in
the joint meeting of the creditors, no consensus was arrived between them to
accept one time settlement. Statements were given by the counsel for the
Allahabad Bank and State Bank of India repeatedly that the State
Government has not even approached them for one time settlement. After some
persuasion, the State Bank of India filed an application on 22-11-2001 signed
by their counsel without any affidavit stating that the Bank will not oppose
for sale provided the amount of Rs. 206 crores offered by the Grasim Industries
Ltd. is distributed in a manner that Rs. 135 crores be given to the workmen's
dues and Rs. 58.88 crores as one time settlement with financial institution and
banks in which the share of State Bank of India is Rs. 7.52 crores and that the
surplus of 12.12 crores will go to State Bank of India and Allahabad Bank in
the ratio of Rs. 7.13 crores and Rs. 4.99 crores respectively and thus demanded
a sum of Rs. 14.65 crores towards the liquidation of the dues lying in the
account of the company (in liq.). It imposed further condition to the effect
that in case the sale proceeds of the assets exceeds Rs. 206 crores the said
excess sale proceeds shall be paid to the State Bank of India over and above
the aforesaid amount towards the liquidation of its dues as secured creditors
and that sale must take place within six months and that the proceedings before
the Debt Recovery Tribunal shall not be affected until the receipt of the sale
proceed as above and the guarantees of the State of Uttar Pradesh shall also
not stand discharged till the liquidation of bank dues to the extent of Rs.
14.65 crores, or such higher amount as mentioned above, is fully paid. The Bank
further reserved its right to recover its dues before the Debt Recovery
Tribunal and keeping all its securities fully effective. The last condition,
i.e., condition No. 8 is most important in which the State Bank of India
stated as follows :
"8. That the
above conditions are subject to the final approval of the Board of the
applicant Bank, i.e., State Bank of India."
52. The Court
required the application to be supported by affidavit of a responsible Officer
of the Bank and granted time for approval of the aforesaid proposal by the
Board of the Bank Sri Kush Saxena. Advocate, filed an affidavit of Harendra
Bansal, Chief Manager of the State Bank of India, Ghosia Branch, Ghosia,
District - Sant Ravi Das Nagar, dated 4-12-2001, reiterating the contents of
the application mentioned as above. Till the last date i.e., 3-1-2002 when the
orders were reserved, the State Bank of India was unable to bring on record
approval of the Board of Directors. The Allahabad Bank was most reluctant to
give any commitment and after repeated orders to make its stand clear, an
application was filed by Allahabad Bank through its counsel Sri P.N. Tirpathi
stating that the State Bank of U.P. is guarantor of the dues of Allahabad Bank
and in case the amount realized from the sale proceeds of the assets of the
corporation fall short the State Government is liable to make the payment.
Paragraphs 4, 5, 6, 7, 8 and 9 of the application of Allahabad Bank are quoted
as below:
"(4) The
application of the State of U.P.
is mala fide because they want to escape their liability by this subterfuge.
State of UP First wanted to negotiate with
IDBI alone, thereafter they made certain proposals with the State Bank of India
alone. No definite proposals have come from the Government. The proposal is
peculate. There is no definite terms to peruse us, though we are willing for
one time settlement and are waiting for a specific and detailed compromise
proposal disclosing the sharing pattern acceptable to all the Financial
Institution and Banks, which may be placed before their competent authorities
for consideration.
(5) The State of U.P. should also
indicate in the compromise proposal its responsibility in case the amount fall
short of the amount for One Time Settlement.
(6) So far the amount
indicated by the S.B.I., which will be approximate Rs. 12.10 crores for
Allahabad Bank, we are willing to accept in principle towards out share out of
Rs. 71.00 crores as calculated by the S.B.I. But in case there is any surplus
sale proceeds the same should be made available to out bank proportionately and
not as claimed by the S.B.I. exclusively.
(7) The aforesaid
compromise will not affect the legal right of the Allahabad Bank in the
proceedings pending before the D.R.T. Allahabad against the respondents.
(8) Notwithstanding
hereinbefore the Bank reserves its right to recover its dues as claimed in the
application before the D.R.T. Allahabad and also all its rights vis-a-vis to
the securities shall remain fully effective and the charge of the bank over
such securities shall continue in favour of the Bank.
(9) Under the
circumstances we are unable to make any further comment except to say that the
State Government should make a specific compromise proposals with definite
terms that can be put before the Board of the Allahabad the competent authority for
consideration and approval."
53. Sri Vikram Nath,
Advocate appearing for IDBI filed a copy of the letter dated 28-11-2001 sent by
Deputy General Manager (Legal) IDBI, in response to the order of the Court
seeking comments from other bank and financial institutions to the application
of the State Government in which it was stated that in joint meeting held on
2-8-2001, the Financial Institutions have agreed to accept Rs. 241 crores
offered by Grasim Industries Ltd. To be distributed as follows :
(i) VRS of the
workmen Rs. 35 crores
(ii) Workers dues Rs.
135 crores
(iii) Financial
Institutions/Bank (principal amount) Rs. 60 crores (iv) Towards the dues of the
Financial Institutions/ Banks proportionate basis) Rs. 11 crores
Further it is stated
in this letter that the working capital limit sanctioned by the S.B.I. are
secured by first charge on the assets of the company and it is not secured by
first charge and mortgage on all movable and immovable properties of the
company, and as such they cannot have claim on the balance claim sale proceeds.
The term loan of Rs. 5 crores by SBI is secured by first charge and mortgage on
the immovable properties of the company. In view of the above, the claim of the
S.B.I. and Allahabad Bank on the balance sale proceeds as well as excess sale
proceeds is illogical and untenable. It is stated in the letter that the State
Bank of India
is misleading the Court and is trying to gain out of same. In view of the above
it is observed in the letter that financial institutions shall not agree with
the proportion of sharing suggested by SBI and sought adjournment for taking up
the matter with senior executives of SBI. The aforesaid application and
affidavit and correspondence shows that the Banks and financial institutions
have not agreed to the terms put by the State Government and that the Allahabad
Bank is still objecting towards the acceptance of the amount towards one time
settlement, The matter has not been considered by the Board of State Bank of India
and that IDBI is not in favour of the acceptance of the amount set apart for
Financial Institutions and Banks in the first part of the bid i.e., Rs. 60
crores and other amount over and above the bid of Part 1, and thus the entire
basis of invitation of offer with regard to the settlement of dues with the
Financial Institutions and Banks in the first part of the bid i.e., Rs. 60
crores and other amount over and above the bid of Part 1, and thus the entire
basis of invitation of offer with regard to the settlement of dues with the
Financial Institutions and Banks was unfounded.
(3) The State
Government was well aware of the legal position that as a promoter which failed
to run the unit, and had also decided and failed to privatize it in the year
1991, it was no loner open to it to offer the assets of the company (in liq.)
for sale by way of privatization as going concern, without seeking prior
approval of the Court and that the sale could only be made through official
liquidator.
(4) The State
Government did not advertise for sale by giving it wider publicity in
publication in all leading newspapers as well as inviting offer for sale by
global tenders. After liberalization of economy and freedom of trade in
investment the assets and the natural wealth is likely to attract foreign
participation in sale.
(5) The concession
granted by the State Government for exemption from Trade Tax for ten years,
waiver of royalties for ten years sanction of power load and electricity duty
exemptions for exceeded the offer of Rs. 241 crores made by Grasim Industries
Ltd.
(6) The anxiety of
the State Government who did not make any response to give financial assistance
before BIFR and AAIFR and was more than eager of winding up the company, casts
a shadow of doubt on its intention, for accepting its single offer without
exploring any possibility of higher offer. It is the duty of the Court which is
trustee of the property to look for the highest amount to be received out of
the sale of the assets, both in public interest as well as in the interest of
the creditors, workmen and the shareholders. The Court is thus not satisfied by
the process adopted for the sale of the assets by the State Government.
(7) Inspite of
repeated queries, the State Government was not able to explain as to why Grasim
Industries Ltd. has not made offer directly to the official liquidator and was
trying to remain in the shadow of the State Government in making the offer.
(8) The State
Government was not willing to offer the reliefs and concessions to any other
party. Initially when the Court directed the official liquidator to seek
response of the State Government in offering the same concession to any higher
offered, the reply given by Sri Pradeep Shukla, Secretary State Government to
the Official Liquidator dated 30-10-2001 amounted to refusal. Para
2 of the reply is quoted as below :
"2. The
Government of U.P. does not support the move for retendering through the
Official Liquidator due to the following reasons :
(1) It will only
unnecessarily delay the revival of the unit through privatization.
(2) The ideas to
transfer the unit as an ongoing concern and not merely disposal of assets,
(3) There is no
guarantee that re-tendering through the Official Liquidator will get a higher
bid.
(4) The other
institutions have also to agree to this move.
3. The reliefs and
concessions offered by the Government of U.P. can remain valid for the move
only if the point mentioned above is taken care of."
54. Sri Ashok Mehta,
the learned Chief Standing Counsel tried to interpret the aforesaid letter of
the State Government dated 30-10-2001 to the official liquidator in a different
manner. He submitted that the State Government cannot refuse to offer the same
reliefs and concessions to any higher offerer. The Court required him to put it
in the form of an affidavit of Principal Secretary Industries. After two
adjournments an affidavit was filed by Sri S.N. Shukla, Industries Development
Commissioner, U.P. dated 1-1-2002. The contents of this affidavit are very
important for arrival at any positive conclusion in this matter, and thus I am
quoting at the paragraphs of this affidavit are quoted as below :
"(1) That the
deponent is presently posted as Industrial Development Commissioner and
Principal Secretary, Government of U.P. Lucknow and as such he is fully
acquainted with the facts deposed to below.
(2) That the present
affidavit is being filed in compliance with the order dated 20-12-2001 passed
in the aforesaid matter, by the Hon'ble
Court.
(3) That the State
Government's primary concern has been revival of unit at the earliest though
privatization in the interest of the workers. The idea is not merely disposal
of assets buy their transfer to a purchaser who has the necessary resources,
competence and experience to run the unit.
(4) That the offer of
M/s. Grasim Industries has been received after open public tender and they are
one of the largest cement producers in the country.
(5) That the request
made by the State Government to the Hon'blc Court was by way of helping and
assisting the Liquidator in the disposal of the Company's property under
Section 457(1)(c) to save time instead of initiating the process afresh at his
level.
(6) That the State
Government has no objection to this Hon'ble
Court exploring the possibility of a higher bid
and the State Government would in that even extended the same reliefs and
concessions as those offered to M/s. Grasim Industries. However, it is
submitted that the following concerns of the State Government may kindly be
also kept in view while taking a decision in this regard:--
(i) The process of
restarting the Unit may not get unduly delayed.
(ii) There is no
guarantee for a higher bid and meanwhile we may loose the offer already
received.
(iii) Besides, the
bid amount, the resources competence, experience and the commitment of the
bidder to run the unit also has to be kept in view.
(7) That, however, in
case it is decided to retender then the present offer of M/s. Grasim Industries
should remain valid and the amount offered by them should be kept as the
minimum reserved price. Moreover in case any higher bid is received in all
fairness. Grasim Industries may be given the first option to purchase the
property at that price.
(8) That beside the
State Government the consent of the Financial Institutions and Banks to extend
similar accommodation the newpurchaser is also necessary."
55. For the aforesaid
reasons the application of the State Government for considering sale to Grasim
Industries Ltd. as only offerer, in pursuance of invitation for sale does not
find favour of the Court and is accordingly rejected. The Official Liquidator
is directed as follows :
1. He shall take
steps to sell the assets and for this purpose a committee for sale of the
assets of the company (in liq.) is constituted consisting of following members
:
(1) Official
Liquidator, U.P., Allahabad,
a Chairman of the Committee.
(2) A nominee of the
IDBI not below the rank of Dy. General Manager.
(3) A nominee of the
State Bank of India
not below rank of Chief Manager.
(4) Industrial Development
Commissioner and Principal Secretary, Government U.P. or his nominee not below
the rank of Secretary in the Government of U.P.
2. The sale of assets
shall be effected by public offer of sale through sealed tender after
advertisement to be carried out in 'Times of India', 'Statesmen1, Asian Age',
Economic Times', 'Financial Express' and 'India Today' and such other
newspapers or journals as the Committee recommends. The tender shall also be
published to reach the global markets for which the committee shall decide the
mode of publication. For the purpose of advertisement the Committee shall
finalize the draft of advertisement after seeking approval from the Court. The
tender document prepared by the State Government shall be considered as a basic
document for this purpose, with modification and changes to be considered and
proposed by the Committee with approval of the Court.
3. The Committee
shall apart from advertising the assets in the aforesaid newspapers, send
invitation of offers to all the leading Cement manufacturers in the country.
All prospective bidders shall be allowed to inspect on the stipulated date or
dates in the presence of the committee or their representative. The bids shall
be made in sealed envelop to be received in the office of the official
liquidator, to be opened by the committee on the previously specified and
notified dates and time in the presence of the bidders or their representative,
and shall be open for negotiation between the valid highest offerers for
considering their offers subject to their resources, competence, experience,
commitment and financial capacity.
4. The reserve price
of the entire assets shall be Rs. 271 crores, worked out on the basis of the
price offered by Grasim Industries Ltd. of Rs. 241 crores and the price of
assets at Churk which were not included in the offer invited by State
Government and valued by State Government in its proposals to cabinet at Rs. 30
crores. The offerer shall be required to deposit earnest money of Rs. 10 crores
by Bank Drafts in favour of official liquidator, U.P. at Allahabad. This amount shall be forfeited if
the party whose offer/bid is finally accepted, makes default in payment on the
terms and conditions of sale, or such negotiated conditions of sale or
completing the offered formalities within the due date. If, however, the sale
is completed and the conditions are complied with within specified time the
earnest money shall be adjusted towards the final sale price without carrying
any interest. It will be open to Grasim Industries Ltd. to make an offer to the
official liquidator U.P. at Allahabad
by depositing the earnest money as above.
5. If the bid is
finally accepted by the Court, twenty-five percent of the sale consideration
excluding the earnest money shall be paid within a period of 30 days, from the
date of intimation regarding the final acceptance of the bid on the notified
address of the bidder by registered post (AD) and balance in instalments to be
negotiated with the Committee and accepted by Court, which shall not exceed
beyond one year, or the total payment. The successive bidder shall, within 30
days of the receipt of the intimation regarding acceptance of his bid, shall
furnish the Bank Guarantees for the purpose of payment of balance amount, to
the extent of entire balance amount as may be considered satisfactory by the
Court, to secure timely payment of consideration for the assets purchased.
6. The earnest money
received from the unsuccessful bidders shall be returned to them. The
possession of the assets purchased and title thereof shall be transferred to
purchaser only on receipt of full payment of the purchase consideration, along
with interest @ 18 per cent p.a., for delayed payment, if any, to be accepted
with prior approval of the Court.
7. The sale of the
mining and tenancy right shall be subject to laws applicable to the State
Government of U.P. The reliefs and concessions shall be the same as guaranteed
by the State Government in the affidavit of Sri S.N. Shukla, Industrial
Development Commissioner and Principal Secretary, Government of U.P. quoted as
above.
8. The Court reserves
all rights of change or modification in the procedure of sale and accepting or
rejecting the sale in its absolute discretion. The entire sale proceeds after
deducting expenses incurred by the official liquidator, so far and expenditure
made during the sale, shall be deposited with the official liquidator as per
provision of the Companies Act 1956. Scales of fees and expenditure shall be
allocated in accordance with the relevant provisions of the Companies (Court)
Rules, 1959 and the orders to be passed by the Court relating to the
liquidation of the company under the Companies Act.
56. The official liquidator is directed to take
steps for sale of the assets of the company expeditiously keeping in view the
facts and circumstances of the case and observations made in this order and the
reliefs and concessions offered by the State Government to any intending higher
offerer. The official liquidator will firstly explore the possibility of sale
of the assets 'as a whole' as going concern, and in the alternative by sale of
assets in such parcels as may be convenient and expedient with the approval of
the Court
5
HIGH COURT OF JUDICATURE OF ALLAHABAD
CJ's Court
Company Appeal No.1239 of 2006
RPJ Minerals Private Limited and
another
Vs.
Shri S.K. Saxena, Official Liquidator,
U.P. State Cements Corporation Ltd. & Others
This appeal is disposed of summarily and the only doubt that we
feel in passing our judgment is as to whether we were justified in spending as
much time as we have, about four days, in hearing the appellants' case or
giving any importance to the points raised on behalf of the appellants. Our
remark is not to be taken as casting any sort of aspersion on the counsel
appearing for the appellants, who did a valiant job, but our remark is directed
only against the thoroughly unsubstantial nature to the appellant's case and
the wholly untenable position of the appellant in regard to its locus standi.
Excepting for a small clarification with regard to paragraph 58,
which is the last paragraph of the judgment and order passed by Hon'ble Mr.
Justice Sunil Ambwani on the 20th of September, 2006, which is impugned before
us, we are in respectful, full and complete agreement with the reasoning given
and the order passed by the Hon'ble Single Judge. The second minor reservation
we have is with regard to a wrong submission made by the State Government with
regard to the State Cabinet decision taken in the year 2001, the exact import
of which was not made clear to the Hon'ble Judge, but subsequently was made
clear to us. This is noted by his Lordship in the last page but one of the
judgment, in the latter portion of paragraph 56. In our opinion, this
incorrectness of fact, which was the result of the State's submission and
pleadings, is not the matter of any material importance.
The appeal arises basically in respect of a sale of Company assets
and other assets approved and confirmed by the Company Court in respect of the Company
in liquidation, i.e., U.P. State Cements Corporation Limited. The order
of winding up was passed in the year 1999; the sale of the said assets
was approved on the 30th of January, 2006 and the order of confirmation
was passed on the 11th of October, 2006. The State
Cabinet incidentally decided to abide by the decision given by the
Company Court on the day before, i.e., on the 10th of October, 2006 and as
such, the State Government has wholly supported purchasers, i.e.,
Jai Prakash Associates Ltd., namely, JAL.
The purchase was made for a total sum of Rs.459
crore; the entire money has been paid to the official liquidator, who
is holding the sum, apparently watching the result of the appeal since
disbursements are urgently to be made; these disbursements include, as we
understand, payments of about Rs.1.00 crore to the erstwhile workers. A further
sum upwards of Rs.250 crore is to be paid to financial institutions, although
there is some dispute in this regard.
The sale comprised of the Company assets in the Dalla region
including mining leases for blocks 1, 2, 3 and 4 of the Kajrahat Limestone
Mines. The dispute and the only dispute in this appeal is with regard to blocks
5, 6 and 7 of the said Kajrahat Limestone Mines, which are adjacent to the
factory premises.
It is on record that right from the beginning with the
advertisement being issued on the 10th of February, 2001 in the Economic Times
and the Business Standard, the State Government wanted to join the Company
sales to make the offer more attractive and thus, they brought along for sale
along with Company assets, the mining leases for these additional blocks 5,6
and 7 in Kajrahat.
The Memorandum of Information, which could be bought by intending
purchasers for Rs.5,000/- clearly mentioned all the seven mines. The State
Government and the official liquidator have both categorically and
unequivocally supported the stand that from the date of the making of the
Memorandum of Information available to the public, the sale included blocks 5,6
and 7 and offers were invited on that basis. The money has been paid by
JAL on this basis as an essential part of the Company Court sale.
It is submitted on behalf of the appellants-R.P.J. that their
promoters Balaji Earthmovers, a partnership firm, entered into an agreement
with U.P. State Mineral Development Corporation (UPSMDC) for a joint venture
including operation of mining leases. The blocks 5, 6 and 7 were originally
given under a 20 years lease by the State Government to the U.P. State
Industrial Development Corporation (UPSIDC). In 1993 the lease, which had run
out on or about 8.11.1982 was renewed for twenty years in favour of the UPSMDC.
The UPSMDC went into doldrums about the time 2001and 2002 when the joint
venture between Balaji and the appellant took place; the UPSIDC Minerals
Division officiated for UPSMDC at this time; later on UPSMDC was sought to be
revived by the State Government in or about the year 2003.
There is an agreement, to which the State Government is also a
party by way of which the four months of the unexpired term of the renewed
portion of the lease from 1982 to 8.11.2002 was transferred to the appellant on
the 31st of July 2002. The agreement makes it clear that RPJ will stand in the
shoes of the lease for the purpose of liabilities, but this is significantly
absent from the agreement, that it will stand in the shoes of the UPSMDC
in regard to the rights also. They thus went into shoes of the lessee
only so far as the left shoes, so to speak, was concerned.
If the rights of Balaji came to an end with the expiry of the 8th
of November 2002 alongwith the rights of RPJ, then and in that event, the
appellant has no locus standi whatsoever.
The sole and single basis on which the appellant seeks to support
its case is to be found at page 218 of the paper book before us, which is a
letter by a Secretary dated 25.2.2004, which is said to be a recording of the
decision to renew the lease in respect of the said blocks 5, 6 and 7
(alongwith other mines with which we are not concerned) for another 20 years
from the year 2002.
It is a matter of the utmost surprise to us that on a single
document of this nature an appeal was sought to be maintained seeking to
stall the utilization of Rs.459 crore, and the mining operations with
which the fate of the inhabitants of that part of the Eastern region of U.P. is
intimately concerned; it is a part of the lease agreement that the Kajrahat Limestone
that would be quarried would be utilized for cement production in that very
area.
Our surprise is magnified because previously an offer of Rs.241
crore made on behalf of one Grasim Industries in this very regard was turned
down by the same Hon'ble Company Judge, and his Lordship directed the sale to
go ahead, giving detailed directions in this regard. A Sale Committee was
formed to assist of the official liquidator. The basic document was declared to
be the Memorandum of Information, which saw the first light of the day in the
year 2001; the judgment in this regard passed by Hon'ble Sunil Ambwani, J., is
reported in Volume 112 Company cases page 562, and the judgment was delivered
on the 14th of February 2002.
After various proceedings, the sale was ultimately confirmed four
years later.
During the year 2002, when the lease in favour of UPSMDC expired,
and the year 2006 no Court proceedings were taken by the appellant, no lease
was executed in favour of the UPSMDC or the appellant of blocks 5, 6 and 7 by
the State. The entire business community knew, and must be taken to have known
by all reasonable standards of the commercial courts that blocks 5, 6 and 7
were up for sale; but the appellant alleges entire ignorance on its part. We
can only make this remark that if it was ignorant, it should not have been so,
in regard to important events, which were happening in regard to the very
neighbourhood in question, where the appellant claims to have been present all
along.
The recording of the decision of renewal in the "all
important" letter of 25.2.2004 is riddled with doubts and disputes; it
mentions Bhalwa Mines and it is said by the appellant that Kajrahat Mines are
included in Bhalwa Mines although the villages of Billi, Kajrahat and Bhalwa are
mentioned separately at the heading of the letter. The letter mentions a
renewal of 20 years from a date 2.1.2002, which is a date without meaning. The
letter further states that the decision to renew is conditional upon RPJ
performing all its joint venture agreement obligations as contained in the
written agreement dated 5.6.2002.
Above all, and this is of the utmost importance, the letter is not
written to or given in favour of RPJ, but given in favour of UPSMDC.
UPSMDC and UPSIDC, Minerals Division and all, are instrumentalities
of the State of U.P.
The State of U.P.
has categorically decided not to undo the big sale, which has produced Rs.459
crore for being absorbed in the industry; there was no other higher offer
coming. This sale is sought to be undone by cutting away a chunk, which was
submitted to be the most important chunk of the Kajrahat Mining Limestone line
of mines. On the basis of this sole and single document of 25.2.2006, if we
were to permit the appellant to have any relief, we would in effect be ruling
that the appellant has a right to have specific performance against the UPSMDC
causing them to sue the State Government; the suit would be for the purpose of
obtaining specific performance of the renewal; further that such suit is to be
decreed even though the UPSMDC has shown absolutely no intention of either
obtaining a renewal or going against the decision of the State Cabinet, which
it cannot.
The State Cabinet did not decide specifically to include blocks 5,
6 and 7 in the properties to be put for sale in 2001 which was wrongly
submitted before the Hon'ble Single Judge but the Cabinet had never gone
against the publication of the Memorandum of Information in 2001 which included
the said three blocks; it has also categorically affirmed all the proceedings
on the 10th of October 2006. In regard to the aforesaid paragraph 58, we
merely want to state this that the two sentences written by his Lordship
therein are to be read together and UPSMDC and RPJ Minerals shall not be
allowed any mining activities in the areas mentioned only in so far as those
are contained in the properties sold to JAL on the basis of the Company sale
approved and confirmed as stated hereinbefore.
Before we part with this case, we wish to make it plain that this
is not a writ matter. We are concerned with basically private litigation
although the Mines and Minerals Regulations and Development Act, 1957 and the
Mineral Concession Rules of 1960 are there in the background and any person
having locus standi can raise points about that Act and those rules as and when
such points practically arise, and not merely because some litigation is
thought to be more beneficial to this business house or that business house.
In brief this was a private litigation between the two business
groups RPJ and JAL; RPJ has a joint venture with UPSMDC, which is going on.
There is nothing in their agreement (see page 196 paragraph 18 of the agreement
dated 5.6.2002) more than this that UPSMDC is to bring to RPJ the mining
leases, which it obtains on approval by the State; there is nothing in the
agreement to indicate that UPSMDC (i.e. the State) will do all it can to
increase the basket for RPJ as much as it can, so that RPJ can increase its
mining activities. In the face of this agreement and this clause which must be
taken to be referred to in the said letter of 25.2.2004, we are
really at a loss to understand how we could hear this appeal for so long and
stall the disbursement of Rs.459 Crore and the starting of mining operations by
the rightful party, which should be done as expeditiously as possible.
Apart from the said clarification with regard to paragraph 58, the
appeal is dismissed.
Dt: 27.10.2006
6
HIGH
COURT OF JUDICATURE AT ALLAHABAD
Special
Appeal No. 1341 of 2007
U.P.
Industrial Cooperative Association Ltd.
Vs.
Official
Liquidator, Attached to Hon'ble High Court of Judicature at Allahabad
Heard Sri V.K.
Birla, learned counsel for the appellant and Sri Ashok Mehta, learned counsel
appearing for the Official Liquidator.
This appeal under
Section 483 of the Companies Act read with Chapter VIII Rule 5 of the High
Court Rules has been preferred against the order dated 17.09.2007 passed by
Hon'ble Company Judge rejecting the application of U.P. Industrial Cooperative
Association Ltd. (hereinafter referred to as the "appellant")
claiming for deduction of the amount of loan as a result of credit sale to the
workman of the company and pay directly to the appellant.
It appears that
certain goods were provided on loan to the workman of M/s U.P. State Cement
Corporation Limited (hereinafter referred to as the "Company") and
for payment of the cost of such article the procedure adopted was that the
amount was to be paid in six instalments to the appellant by making deduction
from monthly salary of the concerned workman, by the Company, and was to be
paid to the appellant directly. Since the regular monthly salary of the workman
itself could not be paid by the Company, the amount of loan instalments also
could not be paid to the appellant. The appellant submits that as a result of
auction of the Company, the amount of wages are being paid to the worker by the
Official Liquidator and from that amount his dues should be deducted and be
paid directly by the Official Liquidator to the appellant. The Hon'ble Single
Judge has rejected the application on the ground that since the 'workman dues'
are to be treated as overriding preferential payments under Sections 529, 529A
and 530 of the Companies Act, 1956 (hereinafter referred to as the
"Act") and the dues of the appellant being unsecured debts, the
appellant cannot be paid the said dues by the Official Liquidator.
Sri Birla placing
reliance on a judgment of Hon'ble Gujarat High Court in Baroda Spinning &
Weaving Mills Co. Ltd. Vs. Baroda Spinning & Weaving Mills Co-operative
Credit Society Ltd. and another, 1976 (46) Company Cases, 1 and earlier order
of the Hon'ble Single Judge in Misc. Company Application No. 4 of 1997 in the
matter of M/s U.P. State Cement Corporation Ltd. passed on 27.04.2007 contended
that the amount of the appellant was a 'money in trust' lying with the Company
and therefore, it did not fall in the category of secured or unsecured debts
and in fact falls in a third category i.e. 'money in trust' and was liable to
be paid by the Official Liquidator directly. The learned Single Judge, be
contended, has erred in law in rejecting the application ignoring the said
legal position.
However, we do not
find any force in the submission in view of the specific provision of Section
529 A of the Act which has been inserted by Companies (Amendment) Act 1985 and
reads as under:-
"529A (1)
Notwithstanding anything contained in any other provision of this Act or any
other law for the time being in force, in the winding up of a company-
(a) workmen's
dues; and
(b) debts due to
secured creditors to the extent such debts rank under clause (c) of the proviso
to sub-section (1) of section 529 pari passu with such dues,
shall be paid in
priority to all other debts.
(2) The debts
payable under clause (a) and clause (b) of sub-section (1) shall be paid in
full, unless the assets are insufficient to meet them, in which case they shall
abate in equal proportions."
The 'workmen's
dues' has been defined in sub-Section 3(b) of Section 529 which has also been
inserted by Companies (Amendment) act, 1985 and reads as under:-
"3 (b)
"workmen's dues", in relation to a company, means the aggregate of
the following sums dues from the company to its workmen, namely:-
(i) all wages or
salary including wages payable for time or piece work and salary earned wholly
or in part by way of commission of any workman, in respect of services rendered
to the company and any compensation payable to any workman under any of the
provisions of the Industrial Disputes Act, 1947 (14 of 1947);
(ii) all accrued
holiday remuneration becoming payable to any workman, or in the case of his
death to any other person in his right, on the termination of his employment before,
or by the effect of, the winding up order of resolution;
(iii) unless the
company is being wound up voluntarily merely for the purposes of reconstruction
or of amalgamation with another company, or unless the company has, at the
commencement of the winding up, under such a contract with insurers as is
mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923),
rights capable of being transferred to and vested in the workman, all amounts
due in respect of any compensation or liability for compensation under the said
Act in respect of the death or disablement of any workman of the company;
(iv) all sums due
to any workman from a provident fund, a pension fund, a gratuity fund or any
other fund for the welfare of the workmen, maintained by the company;"
It is not disputed
that the entire amount which was liable to be deducted from the wages payable
to worker comes within the definition of 'workman dues' and therefore, it was
liable to be paid full as provided by sub-Section 2 of Section 529 A of the
Act.
In Baroda Spinning
& Weaving Mills (Supra) the Hon'ble Gujarat High Court has considered this
issue in 1975 when Section 529 A of the Act was not on the statute book and the
definition of 'workmen's dues' contained in Section 529, which was inserted in
1985 was also not there. The controversy came up for consideration before the
Hon'ble Gujarat High Court was at the time when statutory provisions were
existing differently and, in our view, in view of the specific provision
contained under Section 529 A of the Act, there is no scope to take a different
view than what has been held by the Hon'ble Single Judge in the judgment
impugned in this appeal.
So far as the
order of Hon'ble Single Judge relied upon by the appellant having been passed
earlier, firstly we find that the Hon'ble Company Judge therein had not taken
into account Section 529 and Section 529 A of the Act and further the
Cooperative Society which came up for consideration earlier before the Hon'ble
Company Judge was U.P. Cement Vetanbhogi Rin Samiti Ltd., Churk and was a
Cooperative Society of the workmen of the Company itself established for there
welfare. Since the said society was confined to the workman of this very
Company, the Hon'ble Company Judge passed the said order. It cannot be said to
be a binding precedent or the law laid down on the subject concerned,
particularly the issue involved in the present appeal.
We are, therefore,
of the opinion that the two judgements relied by Sri Birla, learned counsel
appearing on behalf of the appellant do not help him in any manner in view of
the facts and circumstances and the statutory provisions applicable in the case
in hand. We are in respectful agreement with the view taken by the Hon'ble
Single Judge and do not find any reason to interfere in the judgement under appeal.
The appeal, therefore, lacks merit and is accordingly dismissed.
Dt/-29.10.2007
7
In Re: U.P. State Cement Corporation Ltd. (In Liq.) vs on 27/4/2007
JUDGMENT
Sunil Ambwani, J.
1. In these
proceedings, the Company Court
is called upon to decide Applications/Objections/Appeals under Rule 164 of
Companies (Court) Rules, 1959 in the matter of the report of the Official
Liquidator. Liuir Pradesh adjudicating on the 'proofs of debts' and proposing
to distribute the sale proceeds of the assets of the U.P. State Cement
Corporation I united in liquidation) wound up by the Court on 8.12.1999 on the
recommendation of Board of Industrial and Financial Reconstruction, by the
workmen, secured and unsecured creditors, U.P. State Electricity Board,
Employees Provident Fund and others. A total amount of Rs. 459 crores received
by the Official Liquidator from the sale of the assets of the Corporation (in
liquidation) including the reliefs and concessions given by the State
Government is under consideration of the Court. The hearing of these
objections/appeals started on 3.1.2007 and was concluded on 6.4.2007.
THE BACK GROUND
2. 'U.P. State Cement
Corporation Limited' (in liquidation) a Government Company under Section 617 of
the Companies Act; 1956 with the entire paid up share capital subscribed by the
Government of UP (GUP) made a reference to Board of Industrial and Financial
Reconstruction (the BIFR) under Section 15(1) of the Sick Industrial Companies
(Special Provisions) Act 1985 (SICA). The reference was registered on
10.7.1992. The company had accumulated losses to Rs. 180.13 acres as against
its paid up capital of Rs. 68.29 crores. The losses increased to 319.81 crores
as on 31.3.1994 and to Rs. 548.85 crores as on 31.3.1998. The BIFR declared the
company as 'Sick Industrial Company' on 7.10.1992 and appointed the 'Industrial
Development Bank of India'
(IDBI) as 'Operating Agency'. After exploring all the possibilities of
rehabilitation revival, change of management and allowing opportunity to the
workmen, banks and financial institutions as also considering the proposals
made by Cement Manufacturing Companies, the Board formed an opinion under
Section 20(1) of the SICA, to recommend, to wind up the company and for warded
the reference dated 2.7.1997 to the High Court. The reference was received in
the Company Section of the Court on 16.7.1997 and was registered as Misc.
Company Application No. 4 of 1997.
3. The notices were
issued on 3.9.1997 to the Company to show cause as to why the winding up order
may not be passed. Shri Shiv Naih Singh, Advocate filed his appearance for the
company. An Application (A-5) tiled by him was put up for orders by office
report dated 15.10.1997. On the same date, the Court noticed that the workmen
had preferred an appeal before Appellate Authority of Industrial and Financial
Reconstructions (AAIFR) which was admitted and that the operation of the order
of BIFR was stayed. The matter was adjourned for three months to enable learned
Counsel for respondent-company to inform the Court the status of the appeal.
The matter was thereafter adjourned from time to time. The appeal, against the
order of reference dated 2.7.1997 filed on 8.8.1997, was dismissed by AA1FR on
19.2.1998.
4. The Cement Workers
Union (CWU) and 13 other trade unions filed Writ Petition No. 15134 of 1998
challenging the order dated 19.2.1998 passed by AAIFR. The writ petition was
opposed by Government of U.P. (G-UP) on the ground that it was not possible to
run the company with about 6000 employees. The writ petition was connected with
M.C.A. No. 4 of 1997. The court heard the arguments on 23.11.1998 and then on
25.2.1999. On 8.12.1999, the Court dismissed the application of Allahabad Bank
to exempt the hypothecated properties under the agreement with the Corporation
dated 31.3.1982 on the ground that as secured creditor the bank will have
preference in realization of amount under Section 529A of the Companies Act,
1956 (the Act). On the same day, on 8.12.1999 the Court accepted the reference
made by BIFR and directed the company to be wound up. The writ petition No.
15134 of 1998, filed by Cement Workers' Union and Ors. was allowed in part. The
application by the Class-I and Class-11 employees of the Corporation, was
disposed off with following directions:
This is an application
filed by 37 persons claiming to be class I and class II employees of U.P. State
Cement Corporation Ltd. (in short the Corporation).
The applicants have,
made the prayer that the Corporation be directed to pay arrears of salary as
per the revised pay scale and dearness allowance up to the date with 18 percent
interest per annum on the accumulated arrears from the date the amount jell due
nil the date of actual payment bedsides contribution to the employees provided
fund trust. They also prayed that the State Government be directed to provide
alternative employment on equivalent post under the State and allow them to
continue the enjoyment of free residential accommodation with electricity,
water supply, medical aid etc. The Board for Industrial and Financial
Reconstruction (in short the Board) has submitted its opinion for winding up of
the Corporation. This opinion has been affirmed by the Appellate Authority in
appeal. I have accepted the opinion of the Board and have directed for winding
up of the Corporation. As regards the various reliefs claimed in the
application, they cannot be granted in this company application. If the
applicants have any right, they can claim such relief in the appropriate
proceedings before the appropriate authors: The application is accordingly
disposed of.
5. The relevant part
of judgment for these proceedings, allowing the writ petition No. 15134 of 1998
filed by Cement Workers Union and Ors. reported in 2000 (100) CC 76, is:
The financial
institutions had given loan and the interest payable to them are heavy. The
Board examined all the aspect. The court in this petition cannot substitute its
own opinion. After examining the entire material in relation to the functioning
of the sick company the BIFR has submitted its opinion that it is just and
equitable to wind up the company. I do not find that the opinion submitted by
the board is perverse or there is any justifiable ground not to accept the
same.
In the last, learned
Counsel for the petitioner submitted hat the workmen had been working in the
sick unit. They are entitled to wages till the winding up order is passed. This
submission was also raised before the Board and it noted the submission in its
meetings held on September 26, 1996, and observed as follows:
In case the State
Government decide to Wind up the Corporation they should do so and pay all the
dues of the labour. The present Government has different policy regarding sick
P.S.Us. As compared to the previous Government and the workers are hopeful that
a favourable view will be taken in tins case.
There is no reason
why the workers be not paid their salary. In view of the above discussion the
writ petition is dismissed against the recommendation of the Board dated
February 6, 1997, and the order of the Appellate Authority dated February 19,
1998. The writ petition, in so far as the direction in the nature of mandamus
commanding respondent No. 4 to make payment of all dues to the workmen for the
period till today, is allowed. In case respondent No. 4 is not able to pay the
amount, on winding up of the Corporation, the payment shall be made to the
workers prior to making any payment to arc person in accordance with Section
529A of the Companies Act, 1956. The writ petition, as against the other
reliefs claimed in the writ petition is hereby dismissed.
The parties shall
bear their own costs.
6. A Special Appeal
No. 38 of 2000 filed by Cement Workers' Union
was dismissed on 31.7.2000. The Official Liquidator, U.P. was appointed by the
Court as Liquidator of the company. He sent notices to the company to file the
'Statement of Affairs' and to hand over the possession of the assets. The
minutes of the meeting held on 24.3.2000 in the chambers of the Managing
Director, U.P. State Cement Corporation, Lucknow, both with regard to filing of
'Statement of Affairs'; handing over possession and the business of the company
are quoted as below:
MINUTES OF THE
MEETING HELD ON 24.3.2000
IN THE CHAMBER OF
MANAGING DIRECTOR, U.P.
STATE CEMENT
CORPORATION LTD., LUCKNOW
PRESENT:
1. Sri Harbhajan
Singh Managing Director
2. Sri G.S. Rai I/c
General Manager, Churk
3. Sri J.L.
Srivastava I/c General Manager, Dalla
4. Sri R.D. Singh1/c
General Manager, Chunar
5. Sri Yashpal Sharma
Company Secretary/JHM (F)
6. Sri J.K. Singh Sr.
Personnel Officer-HQ
At the outset,
Managing Director explained that lie meeting was called to discuss/review
important issues and problems at the Units/HQ after the winding up orders of
the Corporation passed by Hon'ble High Court, Allahabad on 8.12.1999. In this background,
following issues/points came up for discussion.
1. M.D. informed that
despite his written request and awareness of the urgency and importance of
submission of 'statement of affairs' of the Corporation with the Official
Liquidator in form of the orders of the Hon'ble High Court, Allahabad within
the specified time period of 3 months, General Managers of the units did not
bother to provide requisite information required for the purpose. What was
really made surprising and disheartening in that event the General Managers did
not consider it necessary to acknowledge the letter sent by the Managing
Director on this account. Therefore, under the circumstances and absence of
requisite information from the units, the management had no option but to
compile the statement of affairs on estimated basis with whatever little
information was available at Luc know and with the help and advice of the
outside consultants at Kanpur. The statement of affairs prepared and compiled
on the aforesaid basis has been submitted to the Official Liquidator on
6.3.2000.
Further, in this
context it was informed that essential/emergent expenditures incurred by the
Units/HQ/CMO after 8.12.1999 upto 7.3.2000 is required to be submitted to the
official liquidator for his approval and hence as already requested requisite
information sought on this account be submitted without any further loss of
time so that a consolidated statement for the Corporation as a whole may be
submitted to the Official Liquidator for record and approval. Further, it was
also made, clear that henceforth the expenditure whatever should be incurred by
the Units/HQ and Bank account of the Corporation may not also be operated.
However, a statement showing minimum estimated expenditure for the coming
period may be finalized by the Units/HQ so that it may be submitted to official
liquidator for looking his approval.
2. It was informed
that the Board while reviewing the progress of the winding up and problems of
the Corporation in its meeting held on 22.3.2000 desired that immediate steps
may be taken to ensure the following:
(a) The unit
management should take all possible measures at its level to protect and
safeguard the various movable and immovable, properties/assets of the
Corporation. Assistance/co-operation of the district Administration may be
taken promptly wherever required.
(b) The annual
accounts of the Corporation may be finalized on top priority by constituting a
team at the Unit/HQ level.
(c) All important
cultural functions be attended to by the management till unit is finally taken
over by the Official Leqidator.
3. Regarding the
insurance of assets of the Chunar unit, it was decided that a letter may be
sent to the Official Liquidator immediately for seeking his orders for release
of funds to insurance company by the State Bank of India, Robertsganj.
4. Managing Director
emphasized that it is in the interest of the concerned particularly
employees/officers of the Corporation to attend to all the important functions
till such time the Corporation is taken over by the Official Liquidator and in
this respect all legal cases wherever pending may be contested in the best
possible manner.
Various issues raised
by the General Managers in regard to day-to-day management at the Units were
discussed and clarified by the Managing Director.
(Harbhajan Singh)
1.4.2000
Managing Director
No. MD/LKW/105
Copy for information
and necessary action.
1) General Manager,
Churk/Dalla/Chunar
2) Company Secretary
3) Manager
(F&A)-HQ
4) Manager
(Marketing)
5) Sr. Personnel
Officer-HQ
6) Accounts
Officer-CMO
(Harbhajan Singh)
1.4.2000
Managing Director
7. A 'Statement of
Affairs' verified by Shri Yashpal Sharma, Company Secretary of the Company (in
liquidation) was filed on 6.3.2000. The possession of the assets, however,
could not be taken by the Official Liquidator (OL). On 25.7.2001, the Court
directed the O.L. to take over possession of the assets of the Company (in
liquidation), spread over 80 kins including mines, factories, colonies etc. in
the districts of Mirzapur and Sonbhadra. The District Magistrates, Allahabad, Sonbhadra and
Mirzapur were directed to provide security to the OL on his proposed visit on
27.7.2001. The District Magistrate, Mirzapur and Sonbhadra informed the OL that
the inventories of the assets have been prepared and that the OL can take
charge. Dr. Hari Krishna, Secretary Industrial Development Department,
Government of U.P. also informed the OL on 19.7.2001 that the District
Magistrates are ready to hand over charge to the OL. The OL formally took over
charge of the assets of the Company (in liquidation) on 31.7.2001. Under the
orders of the Court, the District Magistrate, Mirzapur and District Magistrate
Sonbhadra were given supurdgi of the assets.
8. An application No.
47788 of 2001 (A-31) was filed by the Slate Government on 15.7.2001 to direct
the OL to take appropriate steps in the light of the order passed by the Court
on 8.12.1999 and to give due consideration to the offer made by M/s Grasim
Industries Ltd. so that liability of the company may be discharged and the
interest of workmen and other staff be protected. The Allahabad Bank-a secured
creditor opposed the application supported by the affidavit of Shri Hari
Krishna, the Secretary, Heavy Industries, Government of U.P. Lucknow. It was
staied that the advertisements were published by the State Government in
newspapers inviting tenders for taking over cement plants of the company (in
liquidation). These advertisements were published in 'Economic Times' and
'Business Standard' dated 10.2.2001 and 12.2.2001 offering the assets and a
number of reliefs and concessions to be granted by the State Government. The
then Advocate General appearing for State Government submitted that the GUP
adopted a transparent process of sale in which three Cement Companies initially
showed interest. However, finally M/s Grasim Industries Limited made an offer
for the assets totalling Rs. 241 crores. The Sale Committee comprising of
Commissioner of Industrial Development as Chairman; the Secretary, Small
Industries Development: the Secretary, Finance Department; the Secretary, Heavy
Industries and Managing Director, UPSIDC processed the sale. The reliefs and
concessions and the assets on offer were clearly stated in the advertisement
and the 'Memorandum of Information' (MOI) including guidelines for submitting
the tenders. The reliefs and concessions included the renewal of limestone
leases in favour of the company. The State Government offered limestone leases
of Ninjha and Kajrahat, with more than hundred million tones of limestone
deposits adjacent to the mill factory side.
9. During the course
of hearing, the Court summoned cabinet proceedings for appreciating concerns of
the banks; financial institutions and the offer of M/s Grasim Industries
Limited. After going through the entire proceedings, it was noticed by the
Court in its order dated 14.2.2002, that after the winding up of the company,
the assets can only be sold by the OL. The State Government, which is the
promoter and holds the entire share capital, was not competent to advertise the
assets for sale. The submission, that the recommendations to exclude 254 acres
of land, building and factory at Churk and 564 acres of land at Ghurma from the
sale of assets as limestone was not available at these places, valued at Rs. 30
crores, was not proper as the entire assets of the company (in liquidation)
were to be sold. The submissions of Shri R.P. Goel, the then Advocate General,
that the sale was fair and transparent, was not accepted and as such the sale
could only be made by the OL under Section 457(1)(b) of the Act.
10. On an enquiry
made by the Court, as to whether GUP will have no objection, if the Court
explores the possibility for higher bid, the Advocate General submitted that in
such case GUP will have no objection. The Court was not satisfied with the
statement and required GUP to place on record the 'no objection1 in form of an
affidavit. Shri S.N. Shukla, Industrial Development Commissioner, UP filed his
affidavit dated 1.1.2002 in compliance with the order dated 2.1.2002. The
contents of tins affidavit as reproduced in the order dated 14.2.2002 are:
(1) That the deponent
is presently posted as Industrial Development Commissioner and Principal
Secretary, Government of U.P. Lucknow and as such lie is fully acquainted with
the facts deposed to below.
(2) That the present
affidavit is being filed in compliance with the order dated 20.12.2001 passed
in the aforesaid matter, by the Hon'ble
Court.
(3) That the State
Government's primary concern has been revival of unit at the earliest though
privatization in the interest of the workers. The idea is not merely disposal
of assets by their transfer to a purchaser who has the necessary resources,
competence and experience to run the unit.
(4) That the offer of
M/s Grasim Industries has been received after open public tender and they are
one of the largest cement producers in the country.
(5) That the request
made by the State Government to the Hon'ble Court was by way of helping and
assisting the Liquidator in the disposal of the Company's property under
Section 457(1)(c) to save time instead of initiating the process afresh at his
level.
(6) That the State
Government has no objection to this Hon'ble
Court exploring the possibility of a higher bid
and the State Government would in that event extend the same reliefs and
concessions as those offered to M/s Grasim Industries. However, it is submitted
that the following concerns of the State Government may kindly be also kept in
view while taking a decision in this regard:
(i) The process of
restarting the Unit may not get unduly delayed.
(ii) There is no guarantee
for a higher bid and meanwhile we may loose the offer already received.
(iii) Besides, the
bid amount, the resources, competence, experience and the commitment of the
bidder to run the unit also has to be kept in view.
(7) That, however, in
case it is decided to re-tender then the present offer of M/s Grasim Industries
should remain valid and the amount offered by them should be kept as the
minimum reserved price. Moreover in case any higher bid is received in all
fairness M/s Grasim Industries may be given the first option to purchase the
property at that price.
(8) That besides the
State Government the consent of the Financial Institutions and Banks to extend
similar accommodation the new purchaser is also necessary.
11. The Court did not
accept the submissions that the sale of the assets of the company (in
liquidation) under Section 446 of the Companies Act 1956 will take 20 years of
time. It was noticed that the State Government was fully aware of the fact that
the company was wound up and that all its assets were in possession of the
Court under Section 456(3) of the Act. The application was consequently
rejected with directions to constitute a 'Asset Sale Committee' (ASC)
consisting of the OL as Chairman; a nominee of IDBI not below the rank of Deputy
General Manager; a nominee of State Bank of India not below the rank of Chief
Manager; Industrial Development Commissioner and Principal Secretary,
Government of U.P. or his nominee not below the rank of Secretary in the
Government of U.P. The sale was to be carried out by making wide advertisement
in global markets after approval of draft advertisement from the Court. The
tender document prepared by the State Government was to be considered as a
basic document for such purpose with modifications and changes to be considered
by ASC with approval of the Court. Apart from global tender, invitation was to
be sent to all leading cement manufacturers in the country. All the prospective
bidders, were to be allowed inspections and bids to be received in sealed
covers with reserve price of Rs. 271 crores (Rs. 241 crores offered by M/s
Grasim Industries Limited and the assets of Rs. 30 crores which were excluded
by the State Government).
THE SALE OF ASSETS
12. The assets were
valued by M/s A.F. Fergusan & Company in 1995. Shri N.K. Agarwal valued the
assets in the year 2001. The Special Appeals were filed by the State
Government; Allahabad Bank and M/s Grasim Industries Ltd. against the order
dated 14.2.2002 rejecting the proposal of the GUP for accepting the sale in
favour of M/s Grasim Industries Limited. In pursuance of the orders passed in
Special Appeal, the assets were re-valued for the second time by G.S. Birdie in
2003. In the course of hearing of the Special Appeals, some offers and counter
offers were made in the Court. The Bench, hearing the Special Appeal Nos. 271
of 2002 by Grasim Industries and Special Appeal No. 316 of 2003 by State of U.P., however, did not
accept these offers and that on 20.12.2004 the Special Appeals were dismissed
and all the matters were remitted to the Company Judge for carrying out
advertisement and sale. On 28.4.2004, the matter was nominated to this Court by
Hon'ble Mr. Justice T. Chaterji, the then Chief Justice of the Court.
13. The suggestion of
IDBI to engage professional agency for sale of assets was rejected. The global
advertisements were carried out in newspapers covering the entire globe. The
advertisements were also placed on internet. On the recommendations of the ASC,
the bid was invited in two parts. The bidders were required to submit
'Expression of Interest' with their qualifications, which were settled in the
guidelines and which included expertise of the purchasers in manufacturing
cement company and the financial capacity to pay the earnest money. The four bidders
expressed their interest. The ASC in its meeting dated 4.12.2005 found that all
the four bidders which had taken intensive inspections were qualified having a
turn over of more than Rs. 1000 crores and expertise in manufacturing and sale.
All the four bidders deposited Rs. 10 crores each as earnest money. Before the
date of financial bidding dated 16.11.2005, the bidders made certain queries
with regard to reliefs and concessions and delivery of physical possession of
the assets and the benefits to be given to the ex-workmen. The Court found that
tender document running to more than thousands pages with report of geological
surveys and three valuation reports, disclosed all the details; the stage of
further query was over and that the parties may bid on the material available
on record. The ASC under the orders of the Court dated 5.10.2005 held its
meeting to satisfy the queries. In the pre-bid meetings in the chambers dated
5.12.2005 and 16.1.2005, the Court satisfied some of the queries of the bidders.
The matter was taken in Special Appeal. By a long and detailed judgment in
Special Appeal No. 1465 of 2005 and all other connected appeals were dismissed
by the Division Bench on 16.1.2006.
14. With the consent
of all the parties, the matter was taken up in chambers for financial bidding.
All the four bidders desired to submit bids in seal tenders and decided not to
do competitive bidding. They were required and filed their Board resolutions
that they will participate in the bidding only by sealed tender with no further
competitive bidding. On 31.1.2006, the bids were opened in chambers. M/s
Jaiprakash Associates Ltd. (JAL) with the bid of Rs. 459 crores was found to be
the highest bidder, M/s Dalmia Cement (Bharat) Limited was the next highest
bidder with an offer of Rs. 376 crores. M/s Lafarge (India) Private Limited with its bid
at reserve price of Rs. 271 crores was found the third highest bidder. M/s
Grasim Industries Limited did not offer any bid. The highest bid of JAL with a
difference of Rs. 83 crores of the next bid was accepted by the Court. JAL
deposited 25% of the offer on 15.2.2006 and made an offer to deposit the
balance in three instalments, the last of which was to be paid on 19.9.2006.
The offer was accepted with the condition that the JAL will furnish bank
guarantee for the remaining amount. The required bank guarantee was furnished.
The JAL deposited the first two instalments in time. The time for the third
instalment due on 19.9.2006 was extended to 20.9.2006. The JAL deposited the
last instalment on 11.10.2006 within the extended time and the sale was
confirmed in presence and with the consent of all the secured creditors and the
workmen appearing through their Union leaders and representatives.
15. In the meantime,
the Court was engaged almost every week in the process and finalisation of
provident funds account; taking over of the schools and hospitals, giving
directions for summoning and preservation of records; for mapping and
identifying the assets including mines spread over about 80 KMs area in Churk,
Dalla, Ghurma and Chunar in the districts of Sonbhadra and Mirzapur.
16. After the deposit
of the second instalment, the Court found that since it would take a long time
for inviting and settling the claims of about 6000 workmen, secured and
unsecured creditors and Government dues, directions were issued to the OL to
advertise inviting claims under Rule 148 of the Companies (Court) Rules 1959 (
Rules of 1959). The last date for receiving the claims 'proof of debts' was
extended upto 31.7.2006.
17. The Court
appointed a Settlement Claims Committee (SCC) chaired by Shri K.P. Misra (HJS),
retired District Judge, Shri Amit Ray & Company, Chartered Accountant and
Shri Shahid Kazmi, Advocate and provided them office space in the office of the
OL, computers and requisite staff to assist OL to adjudicate the claims. The
SCC collected all the claims, classified and categorised them and after seeking
clarifications from the OL and the Court, prepared a report in 122 days and
submitted the same to the Court on 2.12.2006. There were certain clerical
mistakes, which were corrected in the corrected report dated 4.12.2006.
18. The sale was
confirmed on 11.10.2006. The court accepted the reports submitted by the SCC,
which were duly considered, approved and forwarded by the OL with his report
No. 348 of 2006, to be advertised inviting objections. The order dated
4.12.2006 inviting objections is quoted as follows;
Present Shri Ashok
Mehta, learned Counsel appearing for the Official Liquidator, Shri S.K, Saxena,
the Official Liquidator (OL) and Shri B.K.L Srivastava, Deputy Official
Liquidator, and the members of the Liquidation Claims Committee, Shri K.P.
Misra (Retired District Judge), the Chairman of the Committee, Shri Amitava
Ray, the Chartered Accountant and Shri Shahid Kazmi, Advocate, members.
The U.P. State Cement
Corporation (In Liq.) was wound up by this Court on 08.12.1999. The application
of the State Government for sale through the advertisement carried out by the
State Government was rejected on 14.2.2002, with direction to constitute an
Asset Sale Committee and then invite expression of interest for tenders by
global advertisement. The order was stayed in Special Appeal for about two
years. The Special Appeals were dismissed in January, 2006. The Court,
thereafter, constituted an Asset Sale Committee (ASC) including the
representative of the State Government and creditors, and invited, 'expression
of interest', by making advertisements covering entire globe. The modalities of
sale recommended by ASC were worked out and finalised. The OL then invited
expression of interest by making global advertisement with reserve price of Rs.
271 crores and earnest money deposited of Rs. 10 crores.
The ASC received
expression of interest from five major players out of which four were
shortlisted as they were found to possess qualifications for bidding. The
bidding preceded applications for further clarification. The matter again went
up in Special Appeal. The Special Appeals were dismissed on 16^th January,
2006. The bids were opened on 30.1.2006. M/s Jaiprakash Associates Ltd. was
declared to be highest bidder with an offer of Rs. 459/- crores for the entire
assets on, as is where and whatever there is basis with the second highest
offer of Rs. 376/- a res. The highest bidder requested for time to pay the
entire amount in four installment, the last of which was to fall on 15^th Sep.
2006.
The last installment
was received and the sale was confirmed on 11.10.2006. The Court expected
thousands of workmen, creditors and unsecured creditors to make their claim,
and thus advertisements were made inviting claims by 15^th June, 2006 before
confirmation of sale, which was extended upto 3L7.2006.
A Liquidation Claims
Committee (LCC) was constituted for assisting the Official Liquidator with
special staff and office automation to complete the task.
The OL's report
No.348 of 2006 presented today, in pursuance of the order passed on 29.11.2006,
has accepted the recommendation of the final report of the LCC for settlement
of the claims, to be accepted by the Court.
The Claims Committee
has submitted a report in two envelopes, which is placed today in chambers
under sealed cover.
The main features of
the report in paragraph 7 to 15 are as follows:
7. That the position
of claims received, rejected, admitted, amount claims and amount admitted as
per Section 529A, 530 have been given in detail with the amount in the report.
8. That the main
feature of the report has been found that tin Committee has also considered
three months salary as retrenchment compensation as per Section 25FFF of the
Industrial Disputes Act, 1947 and gratuity. Further in order to maintain
uniformity the Committee ha-, decided to grant Rs. 2299/- as Bonus to all
workmen due to which the amount admitted for payment have become more in some
of the cases than the amount claim by the workmen.
9. That the retired
employees have been considered by the Committee for statutory retirement
benefits on the basis of the order passed by Hon'ble Supreme Court, Hon'ble
High Courts, other Courts, Industrial Tribunals and Arbitrators.
10. That there were
only six secured creditors i.e. (1) IDBI (2) LIC (3) IFCI (4) State Bank of
India (5) Allahabad Bank and (6) Kotak Mahindra Bank Ltd. (for ICICI).
11. That the secured
creditors have been allowed interest @ 11% upto the date of winding up order
and thereafter @ 4% upto 31.7.2006.
12. That the claim of
U.P. Power Corporation has also been considered by the Claims Committee. Since
no proper documents regarding total power units consumed was available, the
Committee has considered the claim of U.P. Power Corporation @ 50c/c of the
arrears so claimed upto 31.3.1999 and from April 1999 to May 20U6 it has
considered to pay 60c/c of the amount for Dalla residential colony. For other
units of the company at Churk and Gurma colony the committee has considered to
pay 60% of the claim against the units of electricity consumed.
13. That as regards
to Mirzapur Division which is having Chunar residential colony and water pump
the committee has recommended 100% of the claimed amount for power consumption.
14. That in regard to
gratuity to employees the Committee has recommended payment of 3,50,000/-.
15. That as regard to
unsecured creditors the Committee appears to have considered only principal amount
and the interest has not been accepted for payment.
The Official
Liquidator with the help of the Liquidation Claims Committee considered 6210
claims including the claims of 5918 Workmen; 3 claims of EPF Commissioner; 6 of
secured creditors; 3 of Employees; 111 of Government; 1 of UPPCL and 168 of
unsecured Creditors. It has rejected the claim of 393 workmen, 14 of Government
and 31 of unsecured creditors. Out of total amount claimed of Rs.
14,74,47,44,498/- (Rupees one thousand four hundred and seventy four crores
forty seven lacs, forty four thousand four hundred and ninety eight),
recommendations have been made to pay the dividend of total amount of Rs.
03,21,04,55,294/-(Rupees three hundred and twenty one crore four lacs fifty
five thousand two hundred and ninety four).This leaves balance of
Rs.01,13,95,44,706/- (Rupees one hundred and thirteen crores ninety five lacs
forty four thousand seven hundred and six) with the Official Liquidator.
Out of total sale
proceeds of Rs. 459 crores, the Official Liquidator has considered Rs. 435
crores for distribution. The remaining amount is required for taxes, Government
fee, commissions, security expenses, advertisement, staff salary and other
expenses.
Rule 163 of the
Companies (Court) Rules, 1959 provides for communication of acceptance of
objection of the proof:
Rule 163 : Acceptance
or rejection of proof to be communicated - After such investigation as he may
think necessary, the liquidator shall in writing admit or reject the proof in
whole or in part. Every decision of the Liquidator accepting or rejecting a
proof either wholly or in part, shall be communicated to the creditor concerned
by post under certificate of posting where the proof is admitted and by
registered post for acknowledgment where the proof is rejected wholly or in
part, provided that it shall not be necessary to give notice of the admission
of a claim to a creditor who has appeared before the Liquidator and the
acceptance of whose claim has been communicated to him or his agent in writing
at the time of acceptance. Where the Liquidator rejects a proof, wholly or in
part, he shall state the grounds of the rejection to the creditor in Form No.
69. Notice of admission of proof shall be in Form No. 70.
Though workmen are
also creditors it is neither practical nor feasible to communicate the
admission or rejection of the claims to each of the 5525 workmen, whose claims
have been admitted and 393 workmen, whose claims have been rejected. The Court,
therefore, in exercise of power under Rule 6 read with Rule 9 of the Companies
(Court) Rules, 1959, directs that all the workmen, whose claims have been
admitted or rejected may be communicated of the order, by publication in
leading newspapers in the area, with a right to inspect the reasons for
rejection or admission of their claim in whole or in part. In case an
individual workman requires such admission or rejection in writing, he shall be
given the same by the Official Liquidator within 48 hours.
With regard to all
other categories of claims including EPF Commissioner, secured creditors,
employees, Government, UPPCL and unsecured creditors, the order of admitting
their claim to proof either whole or in part or the rejections, either whole or
in part shall be individually communicated. The admission of their claim to
proof shall be communicated by certificate of posting and the rejection by
registered post along with Form No. 69 or Form No.70 as the case may be. The
Official Liquidator has requested for one week rime for this purpose. Let the
advertisement be made and the UPC covers and registered covers be sent on or
before 11^th December, 2006 inviting objections by 26^th December, 2006. The
communication shall also be made on the notice board of the factories in Dalla,
Churk, Chunar and Gurma.
All the objections
shall be compiled, categorised and placed before the Court on 03.1.2007.
In case any workmen
or creditor wants to accept the amount admitted to proof, without any
objections and gives a certificate that he is accepting the amount in full and
final payment, and shall not make any objection to the same, shall be paid the
money by account payee cheque. In case of workmen occupying the quarters, these
cheques shall be given as and when they vacate the accommodation and give proof
of the vacation and the accommodation taken over jointly by the representative
of the Official Liquidator and J.P. Associates Ltd.
The Court expresses
its deep appreciation to the Official Liquidator, his staff; the Liquidation
Claims Committee and its staff' for completing the task of accepting,
categorising, adjudicating and deciding the claims submitted by 6210 claimants
within the period of 124 days. They have done a commendable job, for expediting
the payments to the workmen and creditors, who have been looking for the settlement
of their dues for last seven years.
List in chambers on
03.1.2007 at 2.00 p.m.
19. The hearing on
the objections/Appeals under Rule 164 of the Companies (Court) Rules 1959
commenced on 3.1.2007 and has proceeded on day-to-day basis. The Court has heard
Shri P.N. Saxena, Senior Advocate assisted by Shri Amit Saxena; Shri B.D.
Mandhyan, Senior Advocate assisted by Shri Satish Mandhyan; Shri Umesh Narain
Sharma, Senior Advocate, assisted by Shri Chandan Sharma, Advocate; Shri V.K.
Upadhyay, Shri Ravi Kant, Senior Advocate assisted by Shri Ajai Krishan for the
workmen.
THE 'RELEVANT DATE'
ON WHICH THE DISTRIBUTION OF DUES HAVE TO BE CONSIDERED.
20. The winding up of
a company by the Court shall be deemed to commence under Section 441(2) of the
Act, at the time of presentation of the petition for winding up. In case of a
reference under Section 20(1) of SICA by the BIFR, the winding up commences on
the date when the Company Judge applies his mind to initiate proceedings
relying on the order of BIFR. In NGEF Ltd. v.
Chandra Developers (P) Ltd. and Anr. the Supreme Court held in para 50 as follow s:
50. We may, however,
observe the opinion of the Division Bench in PEL Ltd. to the effect that the
winding -up proceeding in relation to a matter arising out of the
recommendations of BIFR shall commence only on passing of an order of winding
up of the Company may not be correct. It may be true that no formal application
is required to be filed for initiating a proceeding under Section 433 of the
Companies Act as the recommendations therefore re made by BIFR or AAIFR, as the
case may be, and, thus, the dote on which such recommendations are made, the
Company Judge applies its mind to initiate a proceeding relying on or on the
basis thereof, the proceeding for winding up would be deemed to have been
started; but there cannot be any doubt whatsoever that having regard to the
phraseology used in Section 20 of SICA that BIFR is the authority proprio
vigore which continues to remain as custodian of the assets of the Company till
a winding-up order is passed by the High Court.
21. In the present
case, the reference dated 2.7.1997 under Section 20(1) of SICA to wind up the
Company (in liquidation) was received by the Court on 16.7.1997 and was
registered as Misc. Company Application No. 4 of 1997. The Court, by its order
dated 3.9.1997, applied its mind to the report and directed notices to be sent
to the U.P. State Cement Corporation Ltd. (in liquidation) by registered/AD fixing
15.10.1997. The proceedings, however, were adjourned on 15.10.1997 on
information that the order of BIFR has been challenged in AAIFR and that its
operation was stayed. The appeal was thereafter dismissed by AAIFR on
19.2.1998. The winding-up in this case as such shall be deemed to commence on
3.9.1997 when the Company Judge applied his mind and issued notices to the
Company (in liquidation) to show cause as to why it should not be wound up.
22. On making of a
winding up order, the petitioner in the winding up proceedings and the company
is required under Section 445(1) to file a certified copy of the order within
30 days with the Registrar of Companies. Sub-section (3) of Section 445
provides that such orders shall be deemed to be notice of discharged to the
officers and employees of the Company except when the business of the company
is continued. Section 445 of the Act is quoted as below:
445. Copy of winding
up order to be filed with Registrar - (1) On the making of a winding up order,
it shall be the duty of the petitioner in the winding u proceedings and of the
company to file with the Registrar a certified copy of the order, within
(thirty days) from the date of the making of the order.
If default is made in
complying with the foregoing provision, the petitioner, or as the case may
require, the company, and every officer of the company who is in default, shall
be punishable with fine which may extend to one hundred rupees for each day
during which the default continues.
(1-A) In computing
the period of (thirty days) from the date of the making of a winding up order
under Sub-section (1), the time requisite for obtaining a certified copy of the
order shall be excluded.
(2) On the filing of
a certified copy of the winding up order, the Registrar shall make a minute
thereof in his books relating to the company, and shall notify in the Official
Gazette that such an order has been made.
(3) Such order shall
be deemed to be notice of discharge to the officers and employees of the
company, except when the business of the company is continued.
23. In the present
case, the company (in liquidation) had closed its mining operation and
production of cement in all its factories before the commencement of the
winding up proceedings. On the date of winding up order i.e. 8.12.1999 the
business operations of the company were closed. The proceedings of the meetings
of the Managing Director of the company with the General Managers of Churk;
Dalla and Chunar units dated 22.3.2000 and 1.4.2000 do not show that the
company (in liquidation) was carrying out any business. In the meeting dated
1.4.2000, it was noticed that the 'statement of affairs' was filed on 6.3.2000
and that union managements were directed not to make any expenditure whatsoever
from the bank account of the Corporation. They were required to submit minimum
estimated expenditure for approval of the OL. The unit managements were
required to take all possible measures at their level to protect and safeguard
the various movable and immovable properties/assets of the corporation and to
finalise the annual account. The company was not carrying out any business on
the date when the winding up order was made and as such the date of winding up
shall be deemed to be the notice of discharged to the officers and employees of
the company. The winding up order was not challenged in appeal and thus the
winding up will take effect on the date it was made by the Court i.e.
8.12.1999.
24. The winding up
order, under Section 446 of the Act of 1956, operates to stay all suits and proceedings
by or against the company except leave of the Court. It has an effect under
Section 447 to operate in favour of all the creditors, and all the
contributories of the company as if it had been made on the joint petition of a
creditor or of a contributory. The 'statement of affairs' is to be filed with
the OL under Section 454 of the Act of 1956. The liquidator in a winding up by
the Court shall have powers with the sanctions of the Court under Section 457
of the Companies Act 1956 to institute or defend, suit, prosecution, or other
proceedings to carry on the business of the company so far as may be necessary
for the beneficial winding up of the company to sell the movable and immovable
properties or accountable claims of the company by public auction or by private
contract with power to transfer the whole thereof to any person or body
corporate or to sell the same or partial to raise on the security of the assets
of the company, any money requested; or to do all such thing as may be
necessary for winding up the affairs of the company and distributing its
assets. The other powers to execute documents, inspect records, etc. are
provided under Sub-section (2) of the Section 457. These powers are guided
under Section 460 subject to directions that may be given by resolution of the
creditors and contributories and under overall supervision of the Court. The OL
is keeper of the records and subjects them to audit under Section 461 and 462
of the Act. The committee of inspections may be appointed under Section 464
under the orders of the Court. The general powers of the Court are given under
Section 466 of the Companies Act which include the powers to stay the winding
up proceedings and under Section 467 for settlement of the contributories and
applications of the assets.
25. The Court may
order the delivery of the property to the liquidator and to summon persons
suspected of having properties of the company and for public examination of
promoters and directors under Section 468, 477 and 478 of the Companies Act
1956.
26. The distribution
of property of the Company (in liquidation) under Section 511 of the Act is
subject to the provisions of the Act as to preferential payments, the assets of
the company, shall on its winding up be applied in satisfaction of its liabilities
pan passu and unless the articles otherwise provide be distributed among the
members according to their rights and interest in the company. The proof and
ranking of claims; application of insolvency rules; overriding preferential
payments and preferential payments are provided in Sections 528, 529, 529A and
530 of the Act of 1956. Chapter-V provides for its applicability to every mode
of winding up. The OL may call proofs of debts of creditor, notwithstanding
that the accounts book contain the entries which prima facie satisfies him with
the indebtedness of the company to the creditors. The provisions of the Act and
the Companies (Court) Rules 1959 for payment to the creditors and the workmen
which are also ranked as secured creditors with preferential rights, unsecured
creditors and government dues are to be considered while deciding the
objections to the report of the OL.
27. The claims of the
secured creditors, workmen, unsecured creditors, government dues, and employees
provident fund have to be considered out of the realization of the assets of
the company. The expenses for liquidation including security, valuation,
advertisement, expenditure of Asset Sale Committee and on Liquidation Claims
Committee, litigation expenses, audit fees, income tax, maintenance and all
other expenses which were necessary to be incurred for maintenance of the
assets including watch and ward, supply of water and electricity to the
colonies, salary and other expenses of teachers and the medical facilities
offered to the 6000 employees living in factories colonies, is the first charge
on the assets of the Company (in liquidation) under Rule 338 of the Companies
(Court) Rule 1959 made by Hon'ble Supreme Court of India after consulting the
High Courts under Sub-section (1) and (2) of Section 643 of Companies Act 1956.
The Rules are supplementary to the Act of 1956 and provide for the statutory
procedure for sale of assets and distribution of the proceeds of the sale. Rule
147 to 179 lay down elaborate procedure for estimating and finally assessing
the company's liabilities as on the relevant date. The liquidator is required
to give notice under Rule 148 of not less than 14 days fixed by the
advertisement to be published in daily news papers, to prove their debts
required under Rule 149. The proof is to be submitted on affidavit verifying
the debts giving statement of account showing particulars of the debts and the
vouchers by which the same may be substantiated. These affidavits are to be in
Form-66. The workmen may, under Rule 152, submit one proof in Form 67 for all
the claims annexing therewith a schedule setting forth their names and amounts
severally due to them. Rule 154 provides that the value of debts and claims
against the company shall, as far as it is possible, be estimated according to
the value thereof on the date of the order of winding up of the company or
where before the presentation of the petition for winding up. A resolution has
been passed for voluntary winding up on the date of passing of such resolution.
Rule 156 provides for interest to the creditors which shall not exceed 4% per
annum to that date from the time when the debts or sum was payable. If the debt
or sum is payable by virtue of written instrument at a certain time and if
payable otherwise then from the time when a demand in writing has been made.
Rule 156 providing for interest payable to the creditors including workmen and
Rule 179 which provides for payment of subsequent interest from the date of
winding up as follows:
156. Interest. On any
debt or certain sum payable at a certain time or otherwise, whereon interest is
not reserved or agreed for and which is overdue at the date of the winding up
order, or the resolution as the case may be, the creditor may prove for
interest at a rate not exceeding four per cent per annum up to that date from
the time when the debt or sum was payable, if the debt or sum is payable by
virtue of a written instrument at a certain time, and if payable otherwise,
then from the time when a demand in writing has been made, giving notice that
interest will be claimed from the date of demand until the time of payment.
179. Payment of
subsequent interest. - In the event of there being a surplus after payment in
full of all the claims admitted to proof, creditors whose proofs have been
admitted shall be paid interest from the date of the winding-up order or of the
resolution as the case may be, up to the date of the declaration of the final
dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount
of the claim after adjusting against the said amount the dividends declared as
on the date of the declaration of each dividend.
28. The OL is
required to examine every proof of debt under Rule 159 and may summon any
person for investigation under Rule 160. He may administer oath and take
affidavits under Rule 161 and may accept or reject the proofs which shall be
communicated under Section 163 to those whose claims have been accepted under
Certificate of Posting on by registered post where proof is rejected wholly or
in part. A creditor may appeal under Rule 164, if he is dissatisfied with the
decision of the liquidator in respect of his proof, not latter than 21 days
from the service of the notice upon him of the decision of the liquidator
before the Judge. The OL is required to file proof and list of the creditors in
Court under Rule 167 which shall be verified except in accordance with the
order of the Court. The list can be inspected under Rule 169 and some times can
be requested for verification of such proof. After hearing the evidence, which
may be tendered the Court shall under Rule 174 adjudicate upon the claims and
settle the list of creditors. Any mistake may be corrected on application of
the liquidatoi under Rule 176. The power of condoning the delay is provided
under Rule 177 of the Rules of 1959.
29. All the Company
Appeals, under Rule 164 raising grounds by way of the objections to the reports
submitted by the Official Liquidator with the help of the SCC regarding proof
of debts, were heard for days altogether. Shri Ravi Kant, Senior Advocate
assisted by Shri M.K. Pandey represented Udai Narain Singh and 75 other workmen
of Churk and Dalla in Company Appear No. O-35/2007. Shri B.D. Mandhyan, Senior
Advocate assisted by Shri Satish Mandhyan, appeared for 17 workmen including 12
of the hospital staffs. Shri P.N. Saxena, Senior Advocate assisted by Shri Amit
Saxena appeared for nine workmen of Chunar and Dalla. Shri Ashok Kumar
Srivastava appeared for Shri Raghunath Singh and 20 others of Dalla representing
those who were engaged in supply of electricity and water to the residential
colonies of the Company (in liquidation). Shri V.K. Upadhyay appeared for Umesh
Vikram Singh. Shri Chandra Bhan Gupta for Dina Nath Chaube and Subhash claiming
an amount payable to them under award for Adjudication Case No. 9 of 1984 by
Industrial Tribunal dated 22.1.1985 including 122 workmen. Shri Ajai Krishna
and Dipti Srivastava appeared in Company Appeal No. 0-28 by Paras Nath Cement
Pvt. Ltd.-unsecured creditors. Shri W.H. Khan appeared for UP Power Corporation
and Shri Dhananjai Awasthi for Employees Provident Fund Commissioner. Shri
Ashok Mehta, representing Official Liquidator, in these proceedings has given
valuable assistance to the Court. He was present throughout the hearing of the
matters and he produced the relevant record, whenever required by the Court and
was present during marathon hearing of the appeals.
30. As observed
above, the claims of hospital staff and the employees concerning to watch and
ward or deputed to supply water and electricity to the residential colonies
shall be considered out of the liquidation amount which is first charge on the
assets and has been separated from the distribution. Their claims, however, as
workmen upto the date of winding up shall be considered by the Court.
THE WORKMEN OF THE
CORPORATION (IN LIQ.)
31. The submissions
by the learned Counsel for workmen raised following issues:
1) Whether the OL had
committed errors in admitting of the claims of the workmen to proof?
2) Whether the
Official Liquidator could have relied upon details of the pay scale submitted
by Shri Harendra Pandey in Writ Petition No. 15134 of 1998 for admitting the
claims of workmen?
3) Whether the
workmen are entitled to any compensation for voluntary retirement claimed by
them as VRS?
4) Whether the
workmen are entitled to claim wages upto 31.7.2001 when the possession of the
units was taken over by the OL?
5) Whether the
workmen are entitled to any arrears of salary prior to 12.7.1998 when they
received last salary from the grants given by the State Government?
6) Whether workmen
are entitled to retrenchment compensation calculated at 15 days salary for
every completed year of service or a fixed retrenchment compensation of three
month's salary and under Section 28FFF of the Industrial Disputes Act 1947?
7) Whether the
workmen are entitled to one month's notice pay treating them to be retrenched
under Section 25F of the Industrial -Disputes Act 1956?
8) Whether the
workmen are entitled to interest @ 12% or interest not exceeding the rate of 4%
on the wages from the winding up till the last date of submission of proofs or
any other date subsequent to thereof?
9) Whether the
workmen are entitled to bonus in addition to the bonus of Rs. 2499/- awarded at
flat rate for the year 1993-94?
10) Whether workmen
dues are barred by limitation?
Issue No. 1:- Whether
the OL had committed errors in admitting of the claims of the workmen to proof.
32. The SCC reports
that many claims (proof of debt) made by the workmen were incomplete. The
records of each unit after their identification were brought under the orders
of the Court, under special security. The claims along with proof were verified
with the help of records. Still many mistakes have crept in by way of bonafide
errors. It appears either there were some mistakes in the claims forms or in
the records and that it is also possible that while verifying the claims and
punching them on computers some more mistakes crept in preparation of the
report. The OL states that some of the mistakes were corrected before the final
corrected report was submitted on 2.12.2006. He, however, candidly admits that
there are some more mistakes, which are being worked out. He has submitted the
detailed chart in which these mistakes have been corrected.
33. The mistakes,
made by the SCC can be classified in the following categories:
a) Pay scale admitted
of the workmen.
b) The calculation in
gross wages.
c) The number of
years the workmen had worked for the purposes of calculating retrenchment
compensation and gratuity.
d) Duplicate claims
by the wife/(sic) or heirs and legal representatives of the workmen who have
since died.
e) The date of
appointment and the date of retirement of the workmen.
34. The OL is
directed to correct all the mistakes, which may have crept in verifying the
claims. Let all these mistakes be removed in the final report which is to be
prepared in pursuance of the directions, which are likely to be issued in
operative portion of this order.
Issue No. 2: Whether
the Official Liquidator could have relied upon details of the pay scale
submitted by Shri Harendra Pandey in Writ Petition No. 15134 of 1998 for
admitting the claims of workmen?
35. All tin learned
Counsels appearing for the objectors/appellants submits that the manpower
summary prepared and annexed along with affidavit of Shri Harendra Pandey in
Writ Petition No. 15J34 of 1998 with regard to the categories of employees and
the pay scales are admitted. They have not placed on record any other manpower
summary of the workmen and employees of the company (in liquidation). This
manpower summary also gives the gross salary drawn by the various categories of
employees. The SCC has taken manpower summary annexed to the affidavit of Shri
Harendra Pandey as the basis after verification from the records for verifying
the claims of the workmen. The court does not find that the method adopted by
the SCC was incorrect.
Issue No. 3: Whether
the workmen are entitled to any compensation for voluntary retirement claimed
by them as VRS?
36. The offer made by
M/s Grasim Industries Limited to the State Government in pursuance of the
advertisement made by the State Government included a package offered to the
workmen and employees of the corporation towards voluntary retirement. The
argument that workers are entitled to VRS proceeds on the basis of offer made
by the Grasim Industries Limited. This offer was not accepted by the Court. The
assets were thereafter put to sale and that the proceeds of the sale are
available for distribution. In such case, the provisions of Sections 528, 529,
529A, 530 of Companies Act are applicable. The workmen have to be paid their
dues. The word 'workmen' is defined under Section 529A(3)(a) in relation to a
company, the employees of the company being workmen within the meaning of
Industrial Disputes Act 1947. Sub-section (b) defines the 'workmen's dues'
which include all wages and salaries, all agreed holiday remuneration and all
sum dues to any workmen from provident fund, a pension fund, a gratuity fund or
any other funds for the welfare of workmen maintained by the company. Section
529A inserted by the Act No. 35 of 1985 provides for overriding preferential
payments and treats the workmen's dues and debts due to the secured creditors
to the extent such debts rank under Clause (c) of the proviso to Sub-section
(1) of Section 529 pan passu with such dues in priority to other debts. These
debts are to be paid under Sub-section (2) in full unless the assets are
insufficient to meet them in which case they shall abate in equal proportion.
Section 530 provides for preferential payments. The employee in this section do
not include workmen. The scheme of distribution of realized assets does not
provide for any payment towards voluntary retirement. The compulsory winding up
of the petition does not result into voluntary retirement of the workmen or
employees. It amounts to closure of the industrial company by an order passed
by the Court. In certain circumstances referred to under Section 433 of
Companies Act 1956 or under Section 20 of SICA, there is no question of
retirement in such case. The voluntary retirement scheme is worked out by way
of an agreement with workmen in negotiated settlement. It is by way of offer
and acceptance worked on : with the help of industrial adjudication. In case of
distribution of assets subject to proof of claims to the workmen treated as a
secured creditors in overriding preferential payments, the question of voluntary
retirement does not arise.
Issue No. 4 : Whether
the workmen are entitled to claim wages upto 31.7.2001 when the possession of
the units was taken over by the OL?
37. The workmen are
not entitled to wages or compensation after the date of winding up. In
paragraphs 22 to 30 that the relevant date for distribution of the dues is the
date when the company was wound up i.e. 8.12.1999. The workmen as such are not
entitled to claim any amount after the date of winding up except those workmen
who are engaged in protecting and preserving of the assets of the company (in
liquidation) under the directions of the OL and the Court.
Issue No. 5 : Whether
the workmen are entitled to any arrears of salary prior to 12.7.1998 when they
received last salary from the grants given by the State Government.
38. Workmen and
employees of the Company (in liquidation) were paid their last salaries upto
12.7.1998. The company was thereafter wound up on 8.12.1999. The statement of
affairs was filed on 6.3.2000 and the Official Liquidator took possession of
the assets on 31.7.2001 in pursuance of the order passed by this Court.
39. The demand of the
workmen for arrears can be sub-divided into three categories:
a) Wage board
arrears.
b) Awards of the
Industrial Tribunal/Labour Courts/other Industrial Adjudicator? bodies which
could not be implemented either because, the company (in liquidation) did not
have sufficient funds or were stayed by the High Court.
c) Any other arrears.
a) Wage Board
Arrears.
40. Shri P.N. Saxena,
learned Senior Advocate appearing for nine workmen (six of Chunar and three of
Dalla) submits that the Cement Union Manufacturer Association entered into
Negotiations with the Workers Federation. The Negotiating Committee consisting
of Shri N. Srinivasan and Shri A.L. Kapoor held prolonged discussions with
Joint Negotiations Committee of Cement Workers, on 18 and 19^th June, 1996 at
Mumbai. The agreement was incorporated into the 'Memorandum of Settlement'
signed jointly by the representatives of the Cement Industry and Cement
Workers' Federation before the Chief Labour Commissioner. Consequently the
strike which was to commence from 24^th June, 1996 was called off. The
memorandum of settlement provided for increasing basic wages; house rent
allowance; conveyance allowance; education allowance; leave travel allowance
washing allowance and dust allowance lo be made effective from 1.4.19%. The
clearness allowance was fixed at AICP1 (1960 = 100) number 1500 at Rs. 2204.30
to be verified @ 2.05 per point for fall or rise would be paid above AICPI
number 1500 ( 1950 = 100). Rate of Rs. 2.05 will be raised to Rs. 2.10 per
point rise or fall from 1.4.1996. The existing method of calculation of
dearness allowance on quarterly basis was to continue. The rate of increments
in respect of various categories of employees to be given on the next due date
of increment was provided in MOU with one annual graded increment for five
years of service as on 1.4.1996 or two annual graded increments above 15 years
of service 1.4.1996. The settlement benefits with previous settlement of Rs.
115/- was to be added in the basic wage as special pay namely 1.4.1996- Rs. 15/
on 1.4.1997 Rs. 40/-, on 1.4.1998 Rs. 30/- and on 1.4.1999 Rs. 30/-. The
settlement was to remain valid for two years. The workmen of the company (in
liquidation) entered into negotiation with the management and that by office
Memorandum dated 12.3.1997, the then management of the company (in liquidation)
agreed to implement Wage Board Award w.e.f. 1.2.1997. The demand for arrears of
10 months beginning from 1.4.1996 to 31.1.1997 was deferred subject to
rehabilitation of the unit and improvement of the financial condition. It is
relevant to state here that the matter was receiving consideration for
rehabilitation in BIFR. The management and the workmen approached BIFR for
implementation of the wage board award. The BIFR in its proceedings observed
that BIFR has no role to play in the matter of settlement of upward revision of
wages.
41. On 12.3.1997, the
Management and the Workmen were competent to sit together and decide the
question of implementation of the Wage Board Award. The workmen were
represented by their authorized unions and thus the settlement was binding on
all the workmen. The relevant part of the settlement, in the office Memorandum
dated 12.3.1997 is quoted as below:
IV. Wage settlement -
Implementation of Memorandum of understanding dated 12.7.1996
The trade union
representatives stressed and urged for immediate implementation of Memorandum
of Settlement dated 12.7.1996. They also mentioned that the B.I.F.R. Has also
now clarified that management can take a decision on their own regarding the
wage settlement. The union representatives were apprised that implementation of
MOS will entail additional financial burden of Rs. 45 lakhs per month and about
Rs. 5 crores towards payments of arrears. In the context of critical financial
position of the Company and the difficulties being experienced in raising
financial resources for the rehabilitation package, the management called upon
the workers to do maximum sacrifies at this juncture to save the Corporation.
In the process the workers may consider to forego some of the allowances
increased in the MOS or to take them later on or forego the arrears accrued
against MOS.
Appreciating the
critical financial condition of the Corporation, the union representatives
suggested that arrears equivalent to one month salary may be paid every month
with current wages. It was explained to the union representative that in case
the proposal for payment of arrears in instalments is agreed to, a provision
for payment of the same along with the source for meeting this committed
liability has to be shown in the rehabilitation package. In the context of
every critical and light financial position and resources crunch it may not be
possible to include this in the rehabilitation package.
After detailed
discussions, the following agreement was reached upon between the management
and the nominated union representatives:
(a) Payment of
increased wages as per Memorandum of Settlement dated 12.7.1996 be implemented
from the salary for the month of February 1997.
(b)The arrears for
the period 1.4.1996 to 31.1.1997 against the MOS dated 12.7.1996 and all the
arrears would be paid after implementation of the rehabilitation package. This
will be decided after taking into account the financial position of the Company
at that time and in consultation with the workers representatives. The union
representatives also agreed that no dispute will be raised for the payment of
arrears.
The union
representatives further agreed that during the three years of implementation of
rehabilitation package workers will not insist for any increase in wages,
salaries etc. at local level/with the management.
Union representatives
were impressed by the Management to dispel from their minds fear of any
victimization pursuant to workers agitation for implementation of the MOS.
Since the
rehabilitation package is still in the process of preparation and during this
process various alternatives, views and difficulties may crop up and therefore,
it was also agreed that till all the aspects of rehabilitation package are not
finalised the process of mutual consultation will be continued. The union
representatives assured the management of their full and positive cooperation
in the process of finalization and implementation of rehabilitation package.
Now, therefore, in
consonance with the agreement reached on 26/27.2.1997 with the nominated six
representatives authorized by all the Trade Unions of the three units and
pursuant to decision taken by the Board of Directors of the Corporation at the
meeting held on 24.2.1996, observations dated 6.2.1997 of Hon'ble Bench III of
B.I.F.R. (para No. 8) and the opinion dated 19.2.1997 of the Law Department, Government
of UP, it has been decided to implement the Memorandum of Settlement under
Section 12(3) and 18(3) of the Industrial Dispute Act, 1947 signed on 12.7.1996
by the CMA and Cement Workers before the Joint Chief Labour Commissioner
(Central) New Delhi as under:
(A) The increase in
Wage/benefits as per MOS at 12.7.1996 aforesaid, as per details given in para
(6) below, will be given to all eligible employees of the Corporation from the
salary for the month of February, 1997 and onwards.
(B) The arrears of
Wage/benefits as per MOS at 12.7.1996 for the period 1.4.1996 to 31.1.1997 will
be paid separately after completion of implementation of Rehabilitation plan of
the Corporation, in instalments to be decided in consultation with the Trade
Union representatives.
(C) The following
benefits under the above settlement will be given to all categories of workers
of the Corporation who have been covered by the Second Arbitration Award for
Cement Industry.
(1) The total
emoluments of all the eligible employees shall be increased by Rs. 890/-
permonth with effect from J.4.1996, as follows:
a) Increase in Basic
Wage Rs. 285/- P.M. b) Increase in House Rent Allowance Rs. 75/- PM c) Increase
in Conveyance Allowance Rs. 300/- P.M. d) Increase in Education Allowance Rs.
30/- PM e) Increase in Leave Travel Allowance Rs. 150/- PM f) Increase in
Washing Allowance Rs. 25/- PM g) Increase in Dust Allowance Rs. 25/- PM
Total Rs. 890/- PM
(2)(a) The fixed
Dearness Allowance payable from 1.4.1996 at All India Consumer Price Index Number
1500 ( 1960 = 100) would be Rs. 2204. JO, which includes earlier fixed D.A. Of
Rs. 824.30 and variable D.A. For 690 points (1500-810 points) at Rs. 2.00 per
point i.e. Rs. 1380.00
(b) From 1.4.1996 for
every point rise or fall in All India Consumer Price Index Number above 1500
(1960 = 100) the existing rate of variable Dearness Allowance of Rs. 2.00 per
point shall be revised to Rs. 2.05 per point. The rate of variable Dearness
Allowance of Rs. 2.05 per point will be further revised to Rs. 2.10 per point
rise or fall 1.4.1998.
(c) The existing
method of calculation of Dearness Allowance on quarterly basis would continue.
(3)(a) The Annual
Increments in the respective scales of pay will be revised as follows with
effect from 1.4.1996:
Grades Present quantum
Revised quantum of increment of increments
E. Rs. 8.00 Rs. 24.00
D. Rs. 11.00 Rs.
33.00
C Rs. 15.00 Rs. 45.00
B Rs. 20.00 Rs. 60.00
A. Rs. 26.00 Rs.
78.00
---------------------------------------------------
TC Rs. 13.00 Rs.
39.00
I Rs. 16.00 Rs. 48.00
II Rs. 20.00 Rs.
60.00
III Rs. 22.00 Rs.
66.00
IV Rs. 28.00 Rs.
84.00
V Rs. 32.00 Rs. 96.00
VI Rs. 36.00 Rs.
108.00
VII Rs. 40.00 Rs.
120.00
(b) The revised
annual increment would be given on the next due date of increment of each
workmen.
(4) Such of the
workmen who were on the rolls of Cement Companies as on 1.4.1996 and who had
completed continuous service of five years and above shall be given one
additional graded increment on 1.4.1996 in their revised pay scale as service
weightage. Such of the workmen who had completed fifteen years and above
continuous service as on 1.4.1996 shall be given two additional graded
increment in their revised pay scales as service weightage.
(5) The earlier
settlement benefit of Rs. 115.00 will be treated as basic wage and termed as
special pay in stages as detailed below:
Special Pay
Settlement benefit
On 1.4.1996 Rs. 15.00
Rs. 100.00 On 1.4.1997 Rs. 55.00 Rs. 60.00 On 1.4.1998 Rs. 85.00 Rs. 30.00 On
1.4.1999 Rs. 115.00 Nil
As and when a portion
of settlement benefit is treated as special paw the existing settlement benefit
will be reduced by such amount.
(6) The settlement is
valid for a period of 4 years from 1.4.1996.
(7) All categories of
workers who have been covered by the Second Arbitration Award shall continue.
(8) All the existing
service conditions, benefits and privileges shall continue to be operative till
revised.
(9) If any workman
reaches the ceiling of his grade during the pendency of this Settlement, he
will continue to draw his annual increment at the rate last drawn.
(10) The salary for
the month of February 1997 shall be computed and paid to the workers oh the
above basis. Arrears for the period 1.4.19% to 31.1.1997 shall be paid
separately as spelled out in para (B) above and as already discussed with the
representative of workmen.
(P.L. Loi)
Managing Director
Dated March 2, 1997.
42. The court finds
that the objection of the workmen, for implementation of the wage board award,
accepted vide office Memorandum dated 12.3.1997 after settlement with the
workmen due to workmen, is valid. The settlement was in fact implemented and
that the workmen had started receiving their salaries in terms of the
settlement w.e.f. 1.2.1997 paid to them upto July 1998. The OL has considered
the increase of wages with the implementation of the wage board award. The OL
however, has not accepted the increments and the increased dearness allowance
to be calculated and paid on quarterly basis. The OL committed an error in
refusing to accept the settlement notified by Office Memorandum dated
12.3.1997. The OL will admit the Increments, Special Pay, Settlement Benefits,
and the quarterly increased in Dearness Allowances payable to the workmen from
July 1998 to the date of winding up i.e. 8.12.1999.
b) Arrears due to workmen
on account of Awards of Labour Court/Industrial Tribunal and other Industrial
Adjudication Boards.
43. The OL has taken
into consideration all the awards of the Labour Court and Industrial Tribunals,
which were placed before him along with claims of the workmen. He has taken
into consideration the awards, the implementation which was stayed by the High
Court. Shri Ashok Mehta, learned Counsel for Official Liquidator submits that
following Awards of the Labour Court and Industrial Tribunal were not considered
by the OL as the details of these Awards and the calculations of the amount was
not produced and annexed with the claims. These details are as follows:
1. Award by
Industrial Tribunal, Allahabad delivered by Shri H.N. Misra in Adjudication
Case No. 19 of 1984 dated 27.3.1985. This award covers 24 workmen terminated on
23.6.1980. Their termination was set aside with 75% back wages. In writ
petition No. 12767 of 1985 by interim order dated 17.9.1985, this Court stayed
the back wages and directed that the workmen be reinstated. The writ petition
was dismissed by this Hon'ble Court on 25.5.2001. Shri Mehta submits that a
computation of the award under Section 6H(1) of the U.P. Industrial Disputes
Act 1947 was made on 9.8.1985 for five workmen for Rs. 211470/-. The other 19
workmen did not get apportioned. One of the workman covered under this Award is
C-920 (Dalla) Shri Din Dayal.
2. Award by Labour
Court, Allahabad by Shri H.N. Srivastava in Adjudication Case No. 8 of 1981
dated 9.7.1983 published on 4.8.1983. This award covers Shri India Deo Singh,
Assistant Store Keeper, a workmen terminated on 23.6.1980. The Labour Court
directed reinstatement with full back wages. In writ petition No. 13861 of 1983
by interim order dated 10.10.1985 the back wages were stayed. The writ petition
was dismissed by this Hon'ble Court on 30.8.1981. In 1 this case the workman is
entitled to back wages i.e. full wages from 23.6.1980 to 4.8.1983 and half
wages from 4.8.1983 till the date of reinstatement. In the interim order only
half wages were stayed from 4.8.1983 to the date of reinstatement.
3. Award by Labour
Court, Allahabad by Shri Hari Mohan Misra in Adjudication Case No. 9 of 1984
dated 22.1.1985. In this award 122 workmen had claimed that they be made
permanent w.e.f. 22.1.1985. Writ Petition No. 9708 of 1985 filed against the
award was dismissed on 11.1.1989. By Special Leave Petition No. 8128 of 1989
against the judgment of High Court was dismissed on 7.3.1991. There is a
calculation under Section 6H(1) of the U.P. Industrial Disputes Act 1947 in
respect of this; award dated 30.3.1991 for Rs. 3104149.78 to which these 122
workmen are entitled.
4. Award in
Adjudication Case No. 26 of 1988 by Industrial Tribunal. Allahabad presided
over by Hon'ble Mr. Justice B.P. Mathur dated 3 1.11.1990. This award covers 19
workmen for payment of higher grade of Rs. 110-270 w.e.f. 16.3.1978. The claim
was allowed and writ petition No. 594 of 1992 against this award was dismissed
on merit on 9.4.1998. Out of 19 workmen covered under the award only 16 have
applied. The OL has allowed claims of some of these workmen beginning from
C-26891. It has observed that the claim of Hirawati wife of Lambodhar Prasad
(C-1668) cannot be entertained as he died on 16.8.1989. She has not filed the
appeal against the order and is otherwise not entitled to any amount. The rest
of the 15 workmen, who have applied for enforcement of the award, are entitled
to the amount, according to the calculation made by them.
5. Award in
Adjudication Case No. 119 of 1986 by Industrial Tribunal presided over by
Justice B.P. Mathur dated 5.1.1991 awarding claim of 404 workmen to be treated
as permanent when they completed three years of service. A writ petition No.
30260 of 1991 was filed against the award in which the stay order was granted
on 6.8.1996. The writ petition was dismissed on 24.9.2004. Recall application
dated 29.7.2005 filed by the OL is still pending.
6. Out of these 404
workmen, 23 have left and 05 did not make any claim leaving 376 workmen. They
are entitled to the award subject to calculation to be made as to when they are
entitled to be made permanent on completing three years of service.
44. One Shri Munna
Prasad, casual labour, Dalla Cement Factory, Dalla has filed an objection to
the part rejection of his claim as workmen on the ground that there was an
agreement between the management of the company (in liquidation) and 587
workmen, who were employed between 1971-1973 as casual labours (unit) and in
1981 as casual labours KCCP (Kajrahat Chunar Cement Project). A seniority list
was issued in.19881 (Annexure No. 1 to the objection/appeal) and that all of
them were working. In 1991 there was a Labour Court's award with regard to
casual workmen and accordingly an agreement was entered into between the management
and the workmen on 16/20.7.1992 (Annexure No. 2 to the objection/appeal) in
which workmen were divided into two groups, in the first group, 122 workmen
were kept, out of 02 had died and 02 had retired and remaining were kept in the
second category. The management agreed that the second category will also be
regularised in accordance with the orders of the then Managing Director dated
7.11.1978. According to this policy, if 30% of the 118 workmen were to be
regularised, 70% of 275 workmen in category two were to be regularised
simultaneously. Shri Harendra Pandey appearing for Munna Prasad submits that
this agreement was withheld and that all 122 casual labour of first category
were treated regular. The OL should have considered the fact that under the agreement
70% casual labours of the second group were also entitled to be regularised for
which an objection was filed with the OL on 25,11.2006.
45. The workers
covered under the award will be benefited in terms of this award by the
Industrial Tribunal and Labour Court. The agreements can be accepted only if
they are registered under Section 6B of the U.P. Industrial Disputes Act 1947.
The agreement dated 16/20.7.1992 was not'a1 registered agreement. The
settlement was not arrived in conciliation' proceedings and has not received
the approval of the Deputy Labour Commissioner. The Court, as such, cannot
recognise this settlement and thus no further relief except the award of the
claim with further benefit given in the court in which order can be given to Shri
Munna Prasad and similarly situate casual workmen.
46. The Court has
gone through all the Awards of Industrial Adjudicatory Bodies and find that
they were required to be implemented and the wages of the workmen covered by
the Award were requires to be included in admitting their claims. The OL is
directed to implement these Awards and to include the amount of the claims of
the workmen who were beneficiaries of these industrial adjudication.
47. The OL has
admitted almost all the arrears/demands of which were submitted by the workmen.
There are no other arrears to be admitted. It was submitted by Shri P.N. Saxena
that the workmen were also entitled to amenities allowances like dhoolbhatta
over the uniforms, shoes and raincoat and helmet implemented w.e.f. 5.5.1997.
The court finds that the production in all the plants had come to an end before
5.5.1997. There was no mining activity or production carried out after that
date. The amenities allowances were admitted to the workmen in case they were
actually found working. Since the workmen were not working, these benefits
cannot be treated to be workmen's dues for the services rendered to the company
(in liquidation).
Issue No. 6 & 7 :
Whether, workmen are entitled to retrenchment Compensation under Section 25FFF
of the Industrial Disputes Act 1947 calculated @ 15 days salary for every
completed year of service and one month's notice pay treating them to be
retrenched under Section 25F of the Industrial Disputes Act 1947 and whether
the workmen are entitled to one month's notice pay treating them to be
retrenched under Section 25F of the Industrial Disputes Act 1956?
48. A total number of
5919 workmen submitted their claims to the OL. Out of these, the OL, on the
recommendation of the SCC, admitted 5229 claims and rejected 393 claims for
want of proofs. The total amount claimed by the workmen towards the dues is Rs.
342,01,73,620/-. Out of this, the OL has admitted only Rs. 117, 18, 99,001/-.
There are 16 categories of workmen including muster roll employees; casual
employees; visiting teachers and 143 officers. The OL has considered and
calculated salaries by approximating the gross salary of each category of
workmen with the highest claim in the category as the indicator. The workmen
were treated as overriding, preferential creditors under Section 529A of
Companies Act 1956. The observation of the SCC accepted by the OL with regard
to workmen is quoted as below:
WORKMEN : (Annexure
1a, 1b, 1c, 1d, 1e, 1f, 1g)
While adjudicating
the claims of Workmen in the above named company under liquidation, the claims
committee has gone through the records as were made available by the Official
Liquidator. However, most of the records made available do not pertain to the
period under consideration.
Payrolls of the
workers do not appear to be accurate and authentic as the same are not signed
or counter signed by any of the competent authority. The Committee also
requested the employees provident Fund commissioner, Varanasi to submit the
audit report and form VI (in which details of Workmen Salary and deductions are
given), but the same has not been made available to the committee as yet.
We have examined the
affidavit and supporting documentary evidence filed by the claimants and also
taken into consideration available records, pay rolls and particularly the
manpower report (indicating the grade-wise and designation wise gross salary),
filed in Writ Petition No. 15134 of 1998, by Shri Harendra Pandey, the
representative of one of the Workers Union before the Hon'ble Court. (Annexure :
1a) It is admitted; in the affidavit of majority of employees that they have
been paid salary upto 12^th July, 1998.
Keeping in view the
Supreme Court judgment sin S.K. Maini V Carona Sahu Co. Ltd. AIR 1994 SC 1824
and also in Burma Shell Oil Storage & Dist. Co. of India Management Staff'
Association AIR 1971 SC 922, we have classified employees and workmen
accordingly.
After careful
scrutiny of the records and proofs, we have admitted workmen unpaid salaries
till the date of winding up order. The workmen have also been allowed leave
encashment, three months salary as retrenchment compensation as per Section
25FFF of the Industrial Dispute Act 1947 and Gratuity. Many of the workers have
claimed bonus for the year 1993-94. In order to maintain uniformity, the
committee has decided to grant Rs. 2,499.00 as bonus to all the workmen. Simple
Interest @ $% per annum has been awarded on the net wages of the workmen from
the date of winding up order till the last date of submission of claim i.e.,
31^th July 2006. (Annexure No. 1b, 1c, 1d)
Note : Last salary
drawn and service period has been mentioned on the affidavits of every workmen.
Remarks like retired or died have also been mentioned on the affidavits.
Complete calculation has Been done on computer and the print out of each
calculation sheets containing 25 claims of workmen have been affixed on each
bundle of claims file.
Some of the workmen
have committed calculation mistakes. While some other workmen have claimed
interest without mentioning the amount thereof, and therefore interest amount
has not been included in the claimed amount. Some workmen have not specifically
claimed retrenchment compensation, but as a policy decision we have allowed
interest and retrenchment compensation to all the workmen. In such cases,
admitted dividend may appear higher than the amount claimed. The benefit of
retrenchment compensation has not been given to those who died or retired
before the date of winding up order.
The statutory
retirement benefits to the retired employees have also been allowed. We have
also adjudicated the claims of workmen who have filed their claims on the basis
of the orders passed by the Hon'ble Supreme Court, Hon'ble High Court, other
Courts. Industrial Tribunal and Arbitrators. The claims found improper or
doubtful have been rejected. (Annexure No. 1e, 1f 1g)
49. The workmen have
been allowed unpaid salaries with classification of pay scales till the date of
winding up i.e. 8.12.1999. The workmen have also been allowed leave encashment;
three months salary as retrenchment compensation under the proviso to Section
25FFF of the Industrial Disputes Act, 1947 and gratuity. In order to maintain
uniformity, the OL has granted Rs. 2499/- as bonus to all the workmen and then
allowed simple interest @ 4% per annum under Rule 156 of the Companies (Court)
Rules 1959 on the net wages from the date of winding up to till the last date
of submission of claims i.e. 31.7.2006. The retired workmen were not treated as
workmen on the date of winding up as they were not in employment. The statutory
retirement benefits, however, have been allowed to the retired workmen.
50. Shri B.D.
Mandhyan, Senior Advocate; Shri P.N. Saxena, Senior Advocate and Shri Ravi
Kant, Senior Advocate submit that the workmen are entitled to retrenchment
compensation. According to Section 25F read with Section 25FFF of Industrial
Disputes Act 1947 which enables them to get one month's salary for the notice
period and 15 days salary for each completed period of service. They have
relied upon S. Anthony Raj v. A. Sanguman 1994 Com Cases (80) 531 in support of
their submissions that compulsory winding up of a company on the ground that
very substrjatum of the company was gone, will be covered under Section 25F
read with Section 25FFF of the Industrial Disputes Act 1947. Such a case could
not be covered by the proviso to Section 25FFF. The compulsory winding up on1
the recommendation of Board of Industrial and Financial Reconstruction under
Section 20 of the Sick Industrial Companies (Special Provision) Act 1985 is not
closure on account of unavoidable circumstances beyond the control of the
employer.
51. In A. Sanguman
Pilot Pen (India) Ltd. the winding up order was passed by Madras High Court on
27.10.1978 under Section 433 of the Companies Act 1956 after recording finding
that the company was unable to pay its dues. The Madras High Court noticed the
judgments of Kerela High Court and Bombay High Court and the interpretation of
the definition of retrenchment by Supreme Court. In Madhav Chandra v. Nalini
Manna (1963) 67 Cal WN 1037 the Kerela High Court held : "if the closure
is held4 ay a consequence of the winding up and the employees are removed for
that reason, they are not entitled to the benefit under Clause (i) of Section
25FFF which are governed by the proviso thereof." The Kerela High Court in
Palai Central Bank Employees Union v.
Official Liquidator (1965) 35 Com. Cases 279 held that closure as a
consequence of notice under Section 445(3) of the Companies Act is one for
unavoidable circumstances.
52. The Bombay High
Court took a contrary view in Shri Madhav Mills in Re and held that the
explanation to the proviso must be read in the context that the employer has to
prove that the circumstances mentioned in the explanation to the proviso only
refers to particular contingency in which the legislature decide that a finding
would have to be made that the closure was not due to unavoidable circumstances
beyond t lie control of the employer. The financial difficulties resulting out
of usual trading activities are not unavoidable circumstances beyond the
control of the employer.
53. In Hari Prasad v.
A.O. Devakar AIR 1957 SC 121 and Hathi Singh Mafg. Co. Ltd. v. Union of India ;
the Supreme Court held that the word 'retrenchment' in Section 25F of the Act
means discharge of surplus labour or staff by the employer for any reason
whatsoever, otherwise than a punishment inflicted by way of a discharge action
and does not include termination of services of all workmen oh a bonafide
closure of the undertakings or change of ownership of the management. In A.
Anthony Raj (supra) the Division Bench of Madras High Court held that in most
cases the compulsory winding up by the Court is based upon the power of
employers/owners of the company to discharge their debts in due course of their
business and that such an event cannot be treated as unavoidable circumstances
beyond the control of the company. The Madras High Court allowed retrenchment
compensation under Section 25F of the Act.
54. A conspectus of
the above decisions and a reading of Section 25FFF would show that only those
cases where the management of the company had no control over the events which
led to closure and which will also include winding up that proviso to Section
25FFF would apply. These cases may include situations where the business
suffered closure on account of change of policy by the Government, act of God
like earthquake, floods, unforeseen and unpreventable riots, terrorist
activities or change of fiscal polices by the Government. In these cases the
management would have no control over the events leading to closure. In the
present case the UP State Cement Corporation Ltd. (in liquidation) suffered
losses due to bad governance, questionable management practices, excessive
labour, out dated machinery and failure to adopt the modern techniques of
manufacturing cement. All these circumstances indicated by the Board of
Industrial and Financial Reconstruction were the causes for recurring losses,
coupled with the fact that the State Government inspite of several
opportunities did not infuse funds, led to situation in which the company was
unable to survive and was consequently directed to be wound up. These events
either singly or taken together are the circumstance which were not beyond the
control of the management. The closure of industry on the winding up order
passed in such an event will not fall in the proviso to Section 25FFF of the
Industrial Disputes Act 1947. The workmen as such are entitled to full retrenchment
compensation and pay for one month's notice in addition to the gratuity
admitted by the Official Liquidator.
Issue No. 8 : Whether
the workmen are entitled to interest @ 12% or interest not exceeding the rate
of 4% on the wages from the winding up till the last date of submission of
proofs and any other dues subsequent to thereof?
55. It is submitted
that the worker's dues should bear the same interest rate as is paid on delayed
pension. Learned Counsels, appearing for the workmen, have relied upon some
judgments of Supreme Court in the matter of delayed pension. In these cases, it
was observed that a pension is payable by operation of statutory service rules
on the date of retirement. Any delay in payment of pension, which is no longer
bounty or award, results into severe deprivation and hardships. The payment of
pension is not dependent upon the mercy of employer.
56. In the present
case, the sale of the assets was confirmed on 11.10.2006. The claims were
invited before the confirmation of the sale. The workers and employees do not
have a right to receive any interest on their dues payable under Section 529
and 529A and 530 of the Act until the sale was confirmed and thereafter the
statutory period during which the claims are to be invited, rejections notified
under Rule 163 of the Rules. Rule 156 of the Rules of 1959 provide for claim
for interest after winding up. There is no interest either reserved or agreed
to be paid on worker's dues, on the date of winding up order. Rule 146 provides
an outer limit to which the creditors may prove for interest upto the date from
the date sum was payable. The Rules provide that such interest shall not be
exceeding to 4% per annum. Learned Counsels for workmen submit that since
workmen's dues have priority over all other debts, they should be paid interest
as there is sufficient amount left to be distributed. The Court cannot override
the provisions of law, in adjusting equities. It is true that the workmen have
not paid wages since July 1998 and that most of the workmen or their families
were starving. The equity may however not cloud the discretion of the Court to
be guided by the statutory provisions. In Anthony Rai (s) v. A. Sanmugam (1994)
80 CC 531, a Division Bench of Madras High Court did not agree with the view
taken by learned Single Judge in awarding 12% interest to the workmen from the
date of winding up.
57. The objections
with regard to payment of interest @ 12% as such cannot be sustained. The OL
has rightly admitted interest to the workmen @ 4% per annum on the dues to
which they are entitled on the date of winding up of the company (in
liquidation).
Issue No. 9. Whether
the workmen are entitled to bonus in addition to the bonus of Rs. 2499/-
awarded at flat rate for the year 1993-94?
58. The OL had
admitted bonus at a flat rate of Rs. 2499/- in the year 1993-94, it is reported
that all the workmen did not claim bonus and that the bonus at flat rate for
the year 1993-94 was worked out and included in their claims on the basis of
claim of some of the workmen. No one has-claimed more than this amount and for
any subsequent year. Learned Counsel appearing for the workmen did not advance
any argument on bonus. The workmen appeared to be satisfied that this one
presumably on the ground that there was no mining activities and production in
the unit after 1994 and that there were getting salaries upto July 198 on the
grants given by the State Government. It may also be possible that workmen have
received the bonus along with such grants at a statutory minimum rate. In any
case since no argument was addressed, the court finds the award of bonus at a
flat rate of Rs. 2499/- for the year 1993-94 justified with no further claim of
bonus to be paid to the workmen as part of their wages.
Issue No. 10. Whether
workmen dues are barred by limitation?
59. The workmen's
dues are to be paid in preference to all other creditors except secured
creditors for the purposes of payment of their dues. The workmen are ranked as
secured creditors under Section 529 and 529A of the Act. In the present case,
the workmen were paid upto 12.7.1998 from the grants given by the State
Government. They have not received their wages since thereafter. The right to
receive the wages accrued as soon as the assets were put to sale and sale proceeds
were received by the OL. The workmen as such became entitled for payment of
their dues on 13.11.2006. Their dues are as such not barred bv limitation.
60. All the
objections/appeals of the workmen are consequently allowed to the extent that
after correction of the mistakes those in their claims and those which have
crept in on account of preparing the data, the Official Liquidator will admit
to the workmen all the wage board arrears in term of paragraphs 39 to 46 of
this judgment. The Official Liquidator will admit retrenchment compensation
under Section 25FFF of the Industrial Disputes Act, 1947 calculated at 15 days
salary for every completed years of service and one month's notice pay, leave
encashment to the extent which was admissible under the
Rules/Notifications/Orders of the Corporation (in liquidation) and 4% interest
after the date of winding up till the declaration of final dividend by the Official
Liquidator.
THE
EMPLOYEES/OFFICIERS OF THE CORPORATION (IN LIQ)
61. These appeals by
way of objections have been filed by eight officers of the company (in
liquidation) represented by Shri Alok Yadav, Advocate. During the course of
argument, Shri Alok Yadav made a statement that he does not want to press these
objections except the objections of Shri Vinod Shanker Mehta (O-17) and Raman
Bihari Saxena (O-14). He has filed supplementary affidavit stalling that in
June 1997, their last pay was Rs. 11525/- and Rs. 10550/- respectively, whereas
the OL has considered their salary at Rs. 10,000/- and Rs. 8700/- per month.
However, during the further argument, Shri Alok Yadav did not press these
appeals/objections.
SECURED CREDITORS
62. The company (in
liquidation) was heavily indebted on the date it was wound up by the Court on
8.12.1999. It had taken loans by way of term loans from financial institutions
namely DDBI Ltd; IFCI Ltd; LIC, working capital loans from State Bank of India,
and terms loans from Allahabad Bank. The compan (in liquidation) had also taken
terms loans from ICICI Ltd.
63. Shri V.B. Singh,
Senior Advocate assisted by Shri Om Prakash Misra appears for IDBI and IFCI;
Shri J. Nagar for LIC; Shri S.N. Verma, Senior Advocate assisted by Shri Joyant
Banerji, for State Bank of India, and Shri V.K.S. Chaudhari Senior Advocate
assisted by Shri P.N. Tripathi for Allahabad Bank. The loan of ICICI has been
assigned to Kotak Mahindra Ltd. rep rented by Shri Om Prakash Misra.
64. The company (in
liquidation) filed 'Statement of Affairs' on 6.3.2000 verified by Shri Yashpal
Sharma, Company Secretary on Form No.57 on the" basis of audited balance
sheets as on 31.3.1996. List 'B' annexed to the statement of affairs gives the
assets specifically pledged and creditors wholly or partly secured. The
estimated value of security of fixed assets mortgaged to FIs and Banks as on
6.3.2000 was disclosed at Rs. 31836.60 lacs and raw material, stores and spare
parts hypothecated to bank for working capital loans were shown at Rs. 1205.50
lakhs (Total Rs. 33042.10 lacs). The principal amount borrowed from the banks
and financial institutions, according to the loan agreements and the
outstanding as on 6.3.2000, when the statement of affairs was filed, was
disclosed at Rs. 25875.78 lacs.
65. In list 'B' of
the 'Statement of Affairs' the company has declared securities and the amounts
of debentures as follows:
________________________________________________________________________________
________
Particulars Date
Estimated No. Name of Creditor Addres Amount Debt when Su rplus
of assets when value
of s and of debt contracted from
specifically secur
security occupat se curity
pledged ity ion given
________________________________________________________________________________
_______
i)Fixed
assets Term Loans
mortgage to 31836.60 i)IDBI 2974.70 from financial ii)IFCI 344.20 Institution s
institutions iii)LIC
630.00 and & Banks iv)SBI 500.00 Banks are (Details as v.Intt.Accruded
secured by a
per and due on the
20461.88 charge over annexure-1 loan immovable vi) Outstanding properties
present and
future by w
ay
ii) Raw working
capital 465.00 of joint material 1205.50 loan of SBi/Alld Equitable store &
Bank mortagage b y
spares parts deposit
of hypothecated Title deed and
to bank for Hypothecati
on
working of all mova
ible
capital loan and
other (Details as assets pres ent
per and (future
annexure-2) except book debts). The
mortage and
charge crea
ted
rank paripa
ssu
and are sub
ject
to prior ch
arge
created/to
be
created in
favour of
company ban
ker
in respect
of
stores and
spares
and stock i
n trade
and book be
bts for
borrowing f
or
working cap
ital
33042.10 25875.78
7166.32
66. All the secured
creditors, including IDBI; IFCI; LIC; Kotak Mahindra Bank Limited (for ICICI
Debentures); SBI and Allahabad Bank, have submitted claims which were verified
by the OL. The observations of SCC dated 2.12.2006 accepted by the OL for
verifying and admitting the claims of the secured creditors to prove are; given
as below:
3. SECURED CREDITORS (Annexure
No: 3)
The committee has
verified the claims of following secured creditors as per the documents and
affidavits made available.
i. IDBI
ii. LIC
iii. IFCI
iv. State Bank of
India (Inch Working capital loan)
v. Allahabad Bank
(Incl. Working capital loan)
vi. Kotdk Mahindra
Bank Ltd. (ICICI : I & II Loan)
After perusal of
affidavits and documents it was found that only State Bank of India has filed
their Statement of Accounts from April 1980 to December 1987 and the company
has serviced the interest part on the term loan upto 31^St December 1987.
Allahabad Bank has
filled the statement from 1992 onwerds. The State Bank of India is the lead
Bank of the consortium. On perusal of the documents and statement of accounts
it has been assumed that the term debts of all the above mentioned Financial
Institutions and Banks were serviced by the Company upto 31.12.1987. Principal
Debts of the Company has been taken as per list 'B' annexed with the statement
of affairs submitted by the Company with the Official Liquidator. We have
calculated the interest part on following pattern.
1. From 1.1.1988 to,
8.12.1999 (Date of winding up order), Simple Interest @ 11% per annum has been
granted. This is in consonance with the rate of interest as per the agreement
on term loan advanced by IDBI. It is relevant to mention that the present prime
lending rate of the State Bank of India is 11% per annum.
2. From 09.12.1999 to
31s' July 2006 i.e., last date of filling Claim (31^st July 2006), simple
interest @ 4% per annum has been granted as per the Company Court Rule No. 156.
67. Shri Ashok Mehta,
learned Counsel for OL, has made a preliminary objections to the
maintainability of the claims of the secured creditors on, the ground that all
the claims of the secured creditors are barred by limitation. The company (in
liquidation) defaulted in payment of interest due and instalment of principal
loans since 1986-87. The secured creditors did not file any confirmation of
balances. They submitted copy of the letters calling back loans but did not
file suit against the company (in liquidation) for decree within due time. Shri
Ashok Mehta further submits that the secured creditors cannot claim to be
overriding preferential creditors under Section 529A of the Companies Act 1956
as assets specifically mortgaged are not registered as charges under Section
125 of Companies Act 1956 and in any, case the overriding preferential claims
of the secured creditors will only be, to J tin extent of value of the assets
specifically pledged.
68. Shri Ashok Mehta
submits; that date of filing of suit by IDBI in DRT (Original Application1 No.
265/1999) was not given. The IFCI also did not give the date of filing pf suit
in DRT (Transfer Application No. 45 of 2002). The LIC, State Bank; of India and
Kotak Mahindra Ltd. (ICICI) did not mention about any suit filed against the
company. The Allahabad Bank also did not give the date of filing of suit in DRT
(Transfer Application No. 149 of 1999). So far objections filed by State Bank
of India and Allahabad Bank for working capital loans, the OL recommended that
if there is any surplus amount after meeting the claims of first charge holder
and workers overriding preferential claimants under Section 529A, their claims
may be considered.
69. Regarding payment
of interest, Shri Mehta called in aid Rule 156 of the Company (Court) Rules
1959. Since no demand in writing was made available by the secured creditors
from the company, the secured creditors, according to the OL, are liable to be
paid only 4% interest from the date of winding up.
70. Shri V.B. Singh,
Senior Advocate appearing for IDBI and IFCI submits that Section 22(5) of Sick
Industrial Companies (Special Provisions) Act 1985 excludes the period of
limitation for the period the stay under Section 22(1) is operative. In the
present case, the accumulated losses of the company were more than its assets
and that the company lost its net worth in the audited balance sheet for the
year ending 31.3.1991. A reference was made by the company under Section 15(1)
of the Act of 1985 on 28.3.1992, which declared the company as sick industrial
undertaking under Section 3O of the Act, on 7.10.1992. By an order dated
2.7.1997, the BIFR formed an opinion under Section 20 of the Act of 1985 to
wind up the company and referred the matter to the Court which ultimately wound
up the company on 8.12.1999 after the appeal was dismissed by AAIFR and the
writ petition filed by workmen against the order of AAIFR was dismissed. Shri
V.B. Singh submits that the period of limitation was arrested on 28.3.1992 and
will re-start from 2.7.1997.
71. Shri V.B. Singh,
Senior Advocate and Shri Om Prakash Misra submit that the company (in
liquidation) has admitted the dues in the audited balance sheet as on 31,3.1996
and that the same admission is reflected in the 'Statement of Affairs' filed by
the Company Secretary of the Company (in, liquidation) filed on 6.3.2000. In
the meantime the IDBI, IFCI and ICICI filed claim petitions in Debt Recovery
Tribunal, which was the only remedy available to the secured creditors to
realize their dues. The date chart with regard to dues of IDBI, IFCI and ICICI
(now represented by Kotak Mahindra Bank Limited) with regard to their dues for
the purpose of working out whether the debts are barred by limitation is given
as below:
1. Industrial
Development Bank of India Limited (IDBI Ltd.)
1. 27.2.1978, 1st
Loan Agreement executed between IDBI Ltd. and the company. In pursuance thereof
Rs. 2300 Lacs (Rupee Term Loan) was fully disbursed to be paid @ 11% per annum
payable half early on 20^th June and 20^th December each year. In the event of
default a further interest @ 0.5% per annum by way of liquidated damages over
and above the rate of interest was payable upon the, footing of
compound-interest. The first charge on the movables and immovable assets of the
company (in liquidation) was created ranking pari passu with other secured
creditors.
2. 22.12.1980, 2nd
Loan Agreement was executed. In pursuance thereof Rs. 700 Lacs (Rupee Term
Loan) was fully disbursed. The company (in liquidation) was to pay interest at
the rate of 11.85% per annum payable half yearly on 20^th June and 20^th
December each year. In the event of default a further interest @ 2% per annum
was payable by way of liquidated damages over and above the footing of compound
interest. First charge on the movable and immovable of the company (in
liquidation) was created ranking pari passu with other secured creditors.
3. 10.1.1983, the
third Term Loan Agreement of Rs. 100 Lacs was executed and this third loan was
fully disbursed to be paid @ 14% per annual payable half yearly on 20th June
and 20^thDecember each year. In the event default a further interest of @ 2%
per annum was payable by way of liquidated damages over and above the footing
of compound interest. First charge on the movable and immovable of the company
(in liquidation) was created ranking pari passu with other secured creditors.
4. 8.12.1999 the
company was wound up by the High Court.
5.16.4.2002 the Debt
Recovery Tribunal (DRT) Mumbai by order dated 16.4.2002 decreed the claim of
IDBI in Original Application No. 265/1999 for an amount of Rs. 1, 29, 58, 09,
262/- together with pendelite and future interest and other damages till its
realisation.
6. IDBI submitted
details of claims by affidavit of proofs of debts amounting Rs. 1, 63, 38, 10,
436/- as on 8.12.1999 (the date of winding up order) and further interest upto
30.4.2006 amount Rs. 3, 41, 82, 87, 199/-.
7. The OL has
admitted an amount of Rs. 7667.29 Lacs only.
II IFCI
1. 21.12.1980, 1^st
Term Loan Agreement executed and Rs. 300 Lacs (First Rupee Term Loan) was fully
disbursed payable with interest @ 11.85% payable half yearly on 20^th March and
20^th September each year. In the event of default 1 further interest of @2%
per annum was payable by way of liquidated damages over and above the footing
of compound interest. First charge on the movable and immovable of the Company
(in liquidation) was created ranking pari passu with other secured creditors.
2. 22.12.1980 2nd
Term Loan Agreement executed for Rs. 100 lacs was fully disbursed1 payable with
interest @ 11.85% per annum payable on 20^th March and 20^th September each
year. In the event of default a further interest of @ 2% per annum was payable
by way of liquidated damages over and above the footing of compound interest.
First charge on the movable and immovable of the company (in liquidation) was
created ranking pari passu with other secured creditors.
3. 10.1.1983 the 3^rd
Term Loan Agreement executed and Rs. 24 Lacs (3rd Rupee Term Loan) was fully
disbursed. The interest to be paid @ 14% payable half yearly on 20^th March and
20^th September each year. In the event of default a further interest of @ 2%
per annum was payable by way of liquidated damages over and above the footing
of compound interest. First charge on the movable and immovable of the company
(in liquidation) was created ranking pan passu with other secured creditors.
4. 5.6.2003, the Debt
Recovery Tribunal, Lucknow vide order dated 5.6.2003 decreed the claim of the
IFCI in Transfer Application No. 45 of 2002 for m amount of Rs. 25,48,21,578/-
together with pendelite and future interest till its realisation.
5. IFCI submitted
details of claims with affidavit of proofs of debts amount of Rs. 26, 45, 21,
731/- as on 8.12.19199 (the date of windng up order) with further interest upto
30.4.2006 amounting Rs. 70,14,49,794/-.
6. 15.12.2006 the OL
admitted an amount of Rs. 887.18 Lacs.
III) Kotak Mahindra
Bank Ltd. (assignee of the loans of ICICI Ltd)
1. 18.11.1980 1st
Facility Agreement executed between ICI& Bank Ltd. and the Company (in
liquidation). In pursuance thereof Rs. 400 Lacs was fully disbursed. The
interest @ 12 % per annum was payable half! yearly on 1st January and 1st July
each year, In the v. event of default, a further interest of @ 1% per annum by
way of liquidated damages over and above the rate of interest was payable upon
the footing of compound interest. The first charge was created ranking pari
passu with IDBI Ltd, LIC, IFCI Ltd. and SBI (Term Loan of Rs. 500 Lacs) Loan of
Rs. 500 Lacs) and SBI as a trustee for the Debentures of Rs. 400 Lacs held by
ICICI Bank Ltd. The GUP furnished irrevocable and unconditional guarantees for
payment of loan.
2. 7.10.1981, 2^nd
Facility Agreement was executed for grant of financial assistant of Rs. 100
Lacs disbursed by way of subscribing debentures carrying an interest @ 12%
redeemable during May 15, 1982 to November 15, 1987. Against this disbursement
the outstanding amount was Rs. 75.10 lacs. A first charge on the movable and
immovable assets of the Company (in liquidation) was created ranking pari passu
with IDBI Ltd, LIC, IFCI Ltd, SBI (Term Loan of Rs. 500 lacs) and Allahabad
Bank (Term Loan of Rs. 500 Lacs) and SBI as a trustee for the debentures of Rs.
400 Lacs held by ICICI Bank Limited. The GUP furnished irrevocable and
unconditional guarantees for payment of the loan.
3. 6.12.2006 the Debt
Recovery Tribunal, Allahabad vide order dated 6.12.2006 in Original Application
No. 291 of 2001 between ICICI Bank Ltd. v. UP
State Cement Corporation Ltd. decreed the claim
and held that Kotak Mahindra Bank Ltd. is entitled for recovery of an amount of
Rs. 56,41,37, 770/- together with pendelite and future interest @ 12 % per
annum with half yearly interest.
4. 15.6.2006 Kotak
Mahindra Bank Ltd. submitted demand of1 claims on affidavit of proofs amounting
to Rs. 46,59,51,812.32 as on the date of winding up.
5. 15.12.2006 the OL
admitted an amount of Rs. 1224.54 Lacs only.
72. Shri V.B. Singh submits
that with regard to term loan, the contractual rate of interest will prevail
over the interest provided under Rule 156 and that even after the winding up
order the agreed rate of interest will continue. The OL has no right to fix any
rate of interest and that Section 529A is fully attracted. The IDBI filed a
claim before DRT Mumbai, which has issued a recovery certificate of Rs.
1,29,58,09,262.00 with pendentilite and future interest till the date of its
realization on 18.4.2006. According to Shri V.B. Singh, the company (in
liquidation) is indebted to IDBI for Rs. 3,41,82,87,199.00 with agreed interest
upto 30.4.2006 and submitted the claim with complete details against three term
loans with relevant supporting documents in proof of debts in Form-66 to the
OL. He submits that the notice of the OL. accepting the claims only for Rs.
7667.29 Lacs and rejecting the claim of Rs. 29615.58 lacs is illegal and
against the provisions of the (sic).
73. There is no
dispute with regard to the principal amount borrowed from the financial
institutions and banks by way of terms loans, working capitals loans and
debentures. In the objections filed by FIs and Banks, the Court is concerned
with only two objections; firstly, the loan is barred by limitation as claimed by
the workmen and secondly, if the loans are not barred by limitation, the rate
of interest to which the financial institutions and banks are entitled upto
date of winding up order and thereafter till the date of declaration of
dividend. In case the answer to both the questions raised as above is in favour
of the FIs and Banks, the third question regarding overriding preferential
claims of the secured creditors to the extent of the securities specifically
pledged, mortgage and hypothecated for the purposes of Section 529 and 529A
will arise.
74. It is admitted
that in proceedings before the DRT Mumbai and DRT Allahabad, the OL was
represented by his counsel Shri Arnab Banerji. A written statement was filed by
the OL. The decree as such granted by DRT is binding on OL. He has not
challenged the decree in the appeal. The IDBI, IFCI and Kotak Mahindra Bank
Ltd. have already put the decree in execution which are pending before the
Recovery Officer, DRT. As a result of these proceedings, the OL cannot
challenge that the claims of the IDBI, IFCI and Kotak Malvndra Bank Ltd. are
barred by limitation. In fact the OL has not treated the claims to be barred by
limitation and has adjudicated them. He has admitted the principal amount to
proof. The OL, however, has reduced the interest at a simple rate of 11% per
annum on the basis that it was the prime lending rate of the financial
institutions and banks prevalent in the period fixed by RBI, and has admitted
only 4% interest after the date of. winding up. Till the date the claims were
invited i.e. 31.7.2006.
75. The laws of
insolvency are applicable for payment of secured debts. It is agreed and it is
admitted to the counsels for the secured creditors including IDB1, IFCI, Kotak
Mahindra Bank Ltd, LIC, SBI and Allahabad Bank that under the consortium
agreement, the term loans granted by FIs and Banks are secured as first charge
on the movable and immovable assets of the company (in liquidation) ranking
pari passu with other secured creditors. This leaves only the working capital
loans which were secured by hypothecation of raw materials, stores and spare
parts. The estimated value of the security of the fixed assets, mortgaged to
financial institutions and banks given as per Annexure No. 1 of the statement
of affairs dated 6.3.2000 is Rs. 31836.60 lacs and the estimated value of raw
materials, stores and spare parts hypothecated to the banks in working capital
loans detailed as per Annexure No. 2 of the 'Statement of Affairs' dated
6.3.2000 is Rs. 1205.50 Lacs.
76. The entire assets
of the company have been sold as is where is and whatever there is basis
including actionable claims. These assets include fixed assets, stocks, and raw
material, lease hold rights and reliefs and concessions which have been
detailed in the order. The valuation of, the security of the secured creditors
with regard to term loan has been given in the 'Statement of Affairs' as on
6.3.2000 which has not been disputed by any of the party or their counsel
appearing in the matter. The amount of debts due to the banks and financial
institutions both by way of term loans and working capital loans of Rs.
25875.78 lacs on 6.3.2000 was as such fully secured and represented by the
estimated value of the security of Rs. 33042.10 Lacs, leaving a sum of Rs.
7166.3 lacs as surplus from security. This estimated debt will further bear the
interest at the agreed rate with half yearly rest as agreed under the agreement
and with a further penal interest in terms of the agreements. These have to be
calculated upto the date of winding up i.e. 8.12.1998 and thereafter these
amounts will bear a simple interest under Rules 156 and 179 only at 4 % per
annum as nothing would be left as surplus after payment in full of all the
claims of creditors admitted to proof is to be paid interest only at a rate not
exceeding 4% per annum from the date of winding up order to the date of
declaration of final dividend.
State Bank of India
77. Shri S.N. Verma,
Senior Advocate assisted by Shri Jayont Banerji, Advocate have appeared in
support of their Appeal No. O-22 under Rule 164 of Rules of 1959 supported by
the affidavit of Shri Maheep Kumar, Assistant General Manager, SBI Stressed
Assets Management Branch, Lucknow as supplemented by affidavit of Shri M.C.
Panday, Manager-, SBI, Stressed Assets Management Branch, Lucknow that Form-69
dated 15.12.2006 received by the SBI enclosing reasons of the OL in partly
rejecting the claim is erroneous as it does not include the other admitted
amount of Rs. 301.27 lacs in respect of the cash credit limit and that the OL
has illegally and arbitrarily, partly rejected the claim of the State Bank of
India (SBI).
78. The SBI claimed
Rs. 5544.94 lacs, out of which only an amount of Rs. 1288.75 lacs was admitted
by OL towards term loan.
79. There is an
obvious error in Form-69 dated 15.12.2006 inasmuch as the OL has admitted Rs.
1590.02 lacs which includes Rs. 1288.75 lacs towards term loan with interest
and Rs. 301.27 lakhs towards working capital loan with interest.
80. Shri S.N. Verma,
Senior Advocate states that SBI has no objection to the acceptance of the claim
of Rs. 301.27 lacs towards working capital loan witli interest and is pressing
his objection only with regard to interest of component of the term loan. It is
submitted that the calculation of simple interest @ 11% from 1.1.1988 to
8.12.1999 (the date of winding up) ignores the contractual rate of interest.
81. In paragraphs 9
and 10 of the appeal it is stated that Term Loan Account No. 1 was served only
upto 31.3.1985 and Term Loan Account No. 2 was served upto 30.0.1987.
Thereafter the company was liable to pay the contracted rate of interest. Para
6(ii) of the consortium loan agreement deals with the rate of interest and
liquidated damages on SBI loans. The clause reads as under:
The Company shall pay
to SBI interest at SBI advance rate subject to a minimum rate of 12.5% per
annum on the principal amount of the SBI loan advanced and outstanding from
time to lime. Interest will be payable on the 31^st march, 29^th June, 30^th
September and the 30^th December each year. In the event of default of regular
payment of interest on the due date, compound interest at 13.5% per annum from
the relative due date to the date of payment shall become payable on the monies
due
82. Further para 9(i)
of the consortium loan agreement prescribes the manner in which the payments
received have to be appropriated. The paragraph reads as under:
Any payment made by
the Company to the lenders under these presents shall be appropriated in the
following order of priority:
(a) first towards the
commitment charges due and payable:
(b) Secondly towards
the other cheques, costs, expenses and other monies due and payable, if any
under these presents:
(c) Thirdly towards
penal interest or additional intent, due by way of liquidated damages;
(d) Fourthly towards
interest and compound intent due and payable respectively; and
(e) Lastly towards
installments of principal.
Subject 10 a binding
stipulation contained in a voluntary contract between the parties and/or an
established practice or usage interest on loans and advances may be charged on
periodical rests and also capitalised on remaining unpaid. The principal sum
actually advanced coupled with the interest on periodical rests so capitalized
is capable of being adjudged as principal sum on the date of suit.
84. According to Shri
S.N. Verma, Term Loan Nos. 1 and 2 with agreed account of interest was fully
secured as first charge under the consortium agreement and that sufficient
amount was available in the security available with the company disclosed in
the 'statement of affairs'. The amount claimed by the State Bank of India was
decreed on 6.12,2006 by Debt Recovery Tribunal, Allahabad in TA No. 1496 of
2000 in which the OL was also a party. The Slate Bank of India's shares in the
consortium finance of Rs. 77 crores in the nature of term loan was Rs. 5
crores, between 17.8.1979 to 1.10.1980. The DRT decreed the claim of SBI and
issued recover) certificate for Rs. 62, 08, 50, 394.53 together with pendelite
and future interest @ 17.75% per annum (the award is annexed to the supplementary
affidavit).
85. In para 19 of the
memorandum of appeal the total amount due upto date of winding up towards both
the term loans at contributed rate of interest @ 17.5% per annum is quantified
at Rs. 5290.90 lacs. The bank has claimed simple interest @ 4% after the date
of winding up if the amount is available after satisfying the secured creditors
and workmen.
86. After reading
Clause 6(ii) of the consortium loan agreement quoted in para 12 of the
memorandum of appeal, Shri S.N. Verma very fairly stated that in the event of
default of regular payment of interest, on due date the SBI could get the
maximum interest @ 13.5 per annum compounded quarterly upto date of winding up
and accordingly Shri Jayont Banerji in the presence of Shri M.C. Panday,
Manager, SBI, Stressed Assets Management Branch, Lucknow submitted a fresh
calculation of interest @ 13.50%. The total outstanding term loan as on
31.3.1993 was Rs. 16,37,39478/-. Adding compound interest the amount upto date
of liquidation i.e. 8.12.1999 due on term loan 1 + 2 account comes to Rs.
39,80,875, 79.00 (Rupees Thirty Nine Crores Eighty Lacs Eighty Seven Thousand
Five Hundred Seventy Nine only). The SBI pressed its claim for this amount and
if anything is left in liquidation, a further simple interest @ 4% to be added
till the declaration of final dividend.
87. The other
submission of Shri. S.N. Verma regarding liquidation expenses has been dealt
with while considering the claims of the UP Power Corporation. In substance he
submitted that any amount other than the amount spent for preservation pf
assets-, referred to in Sections 556, 557, and proviso to Section 529(2) of the
Act read with Rule 338 of the Rules of 1959 cannot affect the security of the
bank. The amount legally claimed by the UP Power Corporation for supply of the
electricity under the orders of the Court was for the benefit of workmen and
that workmen and the occupants of the properties enjoying electricity as goods
must pay the amount either from their shares or from their pockets. Shri S.N.
Verma has also relied upon proviso to Section 529(2) to apportion the
liquidation expenses between the secured creditors and he workmen.
Allahabad Bank
88. Shri V.K.S.
Chaudhari, Senior Advocate assisted by Shri P.N. Tripathi appearing for the Allahabad
Bank have seriously disputed part rejection of their claim in the OL
communication on Form 69 dated 15.12,2006 in which the OL has communicated that
out of amount claim of Rs. 39747.05 lacs, the amount of only Rs. 1288.75 lacs
is admitted.
89. Shri V.K.S.
Chaudhari states that Allahabad Bank ha> no grievance and is not making any
objection with regard to claim admitted towards working capital loan with
interest of Rs. 368 lacs. The bank, however, has serious objection to the
rejection of the claim and agreed interest under the consortium agreement on
term loans as the Allahabad Bank has been worst sufferer.
90. Shi V.K.S.
Chaudhari, learned Senior Advocate states that Allahabad Bank has all along
maintained its stand that it wants to keep out of the winding up. The bank has
not participated in the liquidation proceedings except by submitting proof of
debts in response to the notice of the OL. Shri Chaudhari has relied upon ICICI Bank v. Sidco Leathers (2006) 5 CLJ 470 (para 53 and 54) in support of the submission that by
submitting the affidavit of proofs the bank shall not been taken to have joined
the winding up. He submits that bank has neither relinquished the security nor
has given up the guarantee and offer to the extent the bank's claim is
rejected. The outstanding will be secured by the guarantees given by the
Government of Uttar Pradesh. He has referred to the observations made in the
order dated 14.2.2002 rejecting the application of the State Government to
accept the offer of M/s Grasim Industries Ltd. as well as ground No. 9 and 10
of the appeal and the observations made by the Division Bench in Special Appeal
No. 346 of 2002. In para 6 (iii) of the consortium agreement quoted in para 19 it
was agreed by the company (in liquidation) with the Allahabad Bank as follows:
(iii) The Company
shall pay to AB interest at the AB advance rate subject to a minimum of 12.5%
per annum on the principal amount of AB loan advanced, and] outstanding from
time to time. Interest will be payable on the 31^st March, the 29^th June, the
30^th September and the 30^st December each year. In the event of default of
regular payment of interest on the due dates compound interest at 1% per annum
over the interest rate applicable for the time being from the relative due date
to the date of payment shall become payable on the moneys due.
In the event of
default in payment of an instalment of principal, the Company shall be liable
to pay to AB by way of liquidated damages additional interest calculated at the
rate of 1% per annum over the interest rate applicable for the time being on
the instalment in default from the due date till it is paid. The payment of
compound or additional interest shall not affect any liability of the Company
hereunder for such default, nor will it affect the rights of AB to proceed
against the Company for such default.
91. It is stated in
paragraph 19 of the memorandum of appeal that at the time of disbursement of
the loan in 1981 the MLR/PLR of the bank was 19.5% and the bank rate was 12%.
While at the time of NPA of the account in March 1992, the rate of PLR/MLR was
18.5% while the interest of CC limit was agreed subject to minimum rate of 18%
per annum quarterly rests.
92. The Clause (iii)
of the Agreement dated 3.7.1984 of CC limit is not in issue as the bank is not
questioning the amount of interest paid and the quantum of admitted on CC limit
by the OL.
93. Shri V.K.S.
Chaudhari submits that the term loan of Rs. 500 lacs was divided into two accounts
namely TL-1 of Rs. 300 lacs had Rs. 570.14 lacs on 6.6.1989 and TL-2 of Rs. 200
lacs had 527.38 lacs on 6.6.1989. These amounts with interest on 8.12.1999 for
Term Loan No. 1 at the agreed interest rate which comes Rs. 4986.51 lacs and
for Term Loan No. 2 had Rs. 4757.18 lacs and thus on 8.12.1999 a total amount
of Rs. 9743.69 lacs was due.
94. The Allahabad
Bank was required to give an official statement of the bank rate at which the
interest could be charged under the agreement. The bank rate and minimum
lending rate and/or PLR of Allahabad Bank (except sick units of other private
sectors where concessions are given) shows that the bank rate in 1989 was 10%
and that it never exceeded 12% upto 1999. The Allahabad Bank as such was
required to explain as to how it has charged an amount of more the AB advance
rate.
95. There is a
difference between consortium agreement with SBI in Clause 6(ii) and with
Allahabad Bank in Clause 6(iii). Whereas in respect of SBI the compound
interest is indicated at 13.5% per annum, in respect of Allahabad Bank, in the
event of default in payment of principal, the company was liable to pay to
Allahabad Bank by way of liquidated damages additional interest calculated @ 1%
per annum and that the interest rate applicable for time being on the
instalment. In the event of default of regular payment of interest, a compound
interest @ 1% per annum over the interest rate applicable was payable from the
due date without effecting the liability of; the company. In the supplementary affidavit
of Shri I.D. Tiru, Senior Manager, Allahabad Bank, Churk Branch, Sonbhadra,
U.P., it is stated that final calculation of the total outstanding of the term
loan till 9.12.1999 given in paragraph b had reached to Rs. 58, 18, 64, 530.00
(Term Loan-I Rs. 29,03,85,380.00 and Term Loan II Rs. 29,14,79,150.00). This is
the final calculation on the admitted rate of compound interest and penal
interest without compounding.
One lime Settlement
96. Shri V.K.S.
Chaudhari submits that the financial institutions had agreed to one time
settlement. He has referred to the orders of the Court and the orders in
Special Appeals It is submitted that once the financial institutions and banks
had agreed to on, time settlement of their term loans. They cannot claim any amount
higher than the amount offered from the sick industry.
97. The argument does
not merit any consideration inasmuch as the one time settlement principally
agreed by the financial institutions and bank was not finalised in the
meetings. The financial institutions and banks had agreed towards request of
the State Bank of India to one time settlement of their dues in view of the
offered of M/s Grasim Industries Ltd. The State Government had persuaded the
financial institutions and banks that there was no possibility of getting any
amount higher than the amount Rs. 241 crores offered by M/s Grasim Industries
Ltd. including workmen's dues and offer for voluntary retirement scheme to the
workmen. The acceptance to the offer of one time settlement by the banks and
financial institutions was under the shadow of persuasion by the State
Government to sell the assets. The negotiations did not materialize as the
Court rejected the offer of State Government to sell the assets to M/s Grasim
Industries Ltd. and proceeded to advertise the sale through OL in accordance
with the provisions in the Companies Act. All the financial institutions and
Banks excluding Life Insurance Corporation filed their claims before the Debt
Recovery Tribunal and that all these claims have been decreed. In the
circumstances, there is no substance in the objections taken by the Allahabad
Bank that the financial institutions and banks had agreed to one time
settlement of their dues and that they should not be allowed to claim anything
more the amount offered by them in the year 2001.
98. Shri V.K.S.
Chaudhari submitted that the domestic supply of electricity dues to the
porkers, cannot be included in the liquidation expenses to dilute the security
of the bank. In the matter of payment of public dues under Section 529 and 529A
to the secured creditors, only that much amount can be treated as liquidation
expenses, which is necessary for preserving the assets of the company. The
domestic supply of electricity was made to the workmen and thus they are liable
to pay the electricity bills to the UP Power Corporation. There cannot be any
element of discretion or orders to be passed, for protecting fundamental rights
of the workers, who were required to vacate the residential accommodations as
soon as the company was wound up. If the OL failed to discharge his liability
of the evicting the workmen and to obtain vacant possession, the banks
securities cannot be diluted. The law and order is a problem of the State
Government and not of the OL or the, Court, to give any extra benefit out of
the security charged for repayment of the dues of the banks. Shri Chaudhari has
relied upon judgment in Wonders Tupiterchits 1992 (74) CC 215 (Kerela High
Court) in support of his submission regarding liquidation expenses. He has
further relied upon Indian Bank v. OL that the
court's decree has to
be accepted by the OL irrespective of the renewal of charge under sec on 125 of
the Companies Act; State Bank of India v.
Wasangi Venketeshwar Rao (para 7 and 8) in support of his
submission that the contract with a secured creditors cannot be varied and in
which the contract of interest at the RBI rate subject to minimum of 13.50% was
upheld by the Court.
Life Insurance
Corporation
99. Shri J. Nagar,
Advocate, appearing for Life Insurance Corporation (LIC), has filed an Appeal
under Rule 164 of the Rules of 1959 (O-39) challenging the part rejection of
the proof of debts submitted by LIC. As against Rs. 4996.30 lacs claimed by
LIC, the OL admitted only Rs. 1623.83 Lacs treating the term loan to be
inoperative from 1.1.1988 and adding 11% simple interest upto date of winding
up and 4% simple interest thereafter till the date of filing their claim.
100. Adopting the
arguments addressed by Shri V.B. Singh, Senior Advocate appealing for IDBI and
IFCI; Shri Om Prakash Misra, Advocate for Kotak Mahindra Bank Ltd; Shri S.N.
Verma, Senior Advocate for State Bank of India and Shri V.K.S. Chaudhari,
Senior Advocate for Allahabad Bank, Shri J. Nagar submits that according to the
judgment in ICICI Bank v. Sidco
Leather Ltd. (2006) 5 CL.T 470 claim of LIC is entitled to the
entire principle with the contracted rate of interest. He submits that the term
loan granted by LIC under the consortium agreement was disbursed in three
instalments vide pronote dated 8.12.1979; 29.1.1980 and 30.10.1980. The account
became inoperative after 31.12.1987. The first term loan was for Rs.
5,10,00,000/- and the second term loan was for Rs. 90 lacs. The company (in
liquidation) agreed to pay interest @ 12% per annum and further agreed that in
case of default of principal amount, default of interest of 1% and in case of
default of interest an additional penal interest of 1% will be payable.
According to Shri J. Nagar, the interest @ 12% on the principal amount was
payable on half yearly basis. The penal interest, however, will not be
compounded in view of judgment in Central Bank of India v. Ravindra (2002) 1 SCC 368. In this judgment the Supreme Court held that a
person, deprived of the use of money to which he is legally entitled, has a
right to be compensated for the deprivation, which may be called as interest
compensation or damages subject to a binding stipulation contained in a
voluntary contract between the parties and/or and established practice or use
of interest and loan and advance may be charged on periodical rests and also
capitalized on remaining unpaid. Principal sum actually advanced coupled with
the interest on periodical rests so capitalized as capable being adjudged) as
principal sum on the date suit (para 58). The interest once capitalized ceases
to be interest and becomes a part of principal sum or capital and therefore the
question of awarding interest on interest does not arise a all. The Supreme
Court further held in para 55 (1) that penal interest cannot Lie capitalized.
It will be opposed to public policy. Further interest i.e. interest on interest
whether simple, compound or penal cannot be claimed on the mount of penal
interest.
101. On the law laid
down in Central Bank of India's case (supra) and further on the act that there
was no agreement or established practiced or use nor any such established practice
of use has been pressed into service, the compounding of penal interest cannot
be claimed by the financial institutions and banks.
102. The LIC did not
file any suit for recovery of principal and interest in the Civil Court or in
the Debt Recovery Tribunal. Shri J. Nagar submits that though loan w is
inoperative from 1.1.1988 and that the reference made to BIFR was registered on
10.7.1992vand the winding up order was passed on 8.12.1999, the claim of LIC
will not be barred by limitation as under Article 63 of the Limitation Act 1963
the limitation for filing a suit for foreclosure of mortgage is 30 years and
thus the claim filed by LIC is within the limitation of the creation of
mortgage in 1978-79. Shri J. Nagar submits that the entire due of the LIC were
secured by mortgage of the fixed assets of the company under the consortium
agreement and that these assets were much more the in the amount claimed by the
LIC. The claim as such is not barred by limitation.
103. In the present
case the entire debts of the banks and financial institutions were secured by
simple English mortgage by deposit of title deals. In the Statement of Affairs'
as prepared on the basis of the balance sheet as on 31.3.1996 filed on 613.2000
the total amount due to secured creditors with interest was disclosed to Rs.
25875.78 lacs and that the fixed assets mortgaged to financial institutions and
banks were estimated to be valued at Rs. 31836.60 lacs. The loan was entirely
covered by fixed assets mortgaged to he financial institutions and banks.
Section 17 of the Recovery of Debts due o Banks and Financial Institutions Act
1993 provides for same, limitation as it is provided by limitation Act 1963 and
thus the limitation for filing suit by the mortgagors for foreclosure under
Article 63(a) is 30 years. The claims of LIC are as such not barred by law of
limitation.
104. LIC had claimed
an amount of Rs. 4996.30 lacs from the OL. This claim was based on 15% interest
and also capitalizing it by compounding on half yearly basis. Along with his
appeal, Shri J. Nagar has given a fresh calculation of both the terms loans
calculated @ 12.50 % compounded on half rest yearly basis. On the first term
loan of Rs. 5,40,00,000/- and second term loan of Rs. 90 lacs the interest has
been calculated @ 15 % compounded on half yearly basis. The total dues of LIC
calculated in the aforesaid manner upto date of winding up i.e. 8.12.1999 are
Rs. 324,391,121/-. The LIC has agreed not to charge the penal interest.
105. The
Appeals/Objections of the secured creditors including the, IDBI, IFCI, Kotak
Mahindra Bank Ltd, SBI, LIC and Allahabad Bank are consequently partly allowed
with directions to the OL to recalculate the amount as follows:
106. In ICCI Bank Ltd. v. Sidco Leathers Ltd. and
Ors. (2006) 5 CLJ 470 the Supreme Court set, aside the
order of High Court at Allahabad dated 4.8.2004 in Special Appeal No. 698/2002,
affirmed the judgment of Single Judge (Company Judge) dated 24.5.2002. Sidco
Leathers Ltd. was wound up on 16.12.1993 and the OL was appointed as Liquidator
of the company. The IDBI, IFCI, ICICI had given Rupees Term Loans and Foreign
Currency Loan to the company. The Punjab National Bank advanced working capital
funds. A first charge was created in favour of ICICI Bank Ltd. along with other
financial institutions by equitable mortgage with deposit of title deeds of the
immovable properties. The Punjab National Bank secured its loan by second
charge by way of constructive delivery of title deeds. The charge of Punjab
National Hank was subservient to the charges in favour of IFCI, IDBI and ICICI.
The ICICI filed a suit which was transferred to DRT Bombay. The High Court
permitted the suit to continue under Section 446 of the Companies Act. The PNB
also filed a suit in the court of Civil Judge, Fatehpur. The OL sold the assets
and had a sum of Rs. 71,00,351/- available with him for distributions to the
creditors of the company. Relying on Allahabad Bank v. Canara Bank and Anr. AIR 2000 SC 1535 the Company Judge held that IFCI and IDBI have joined the
winding up proceedings and have submitted proofs of debts before the OL They
shall be taken to have given up their securities and thus they will not claim
any priority over the debt of PNB on the fixed assets. The Division Bench held
in appeal that the appellant, haying opted to remain outside the liquidation,
will have second claim of beneficial right. The right of secured creditors
under Section 529A is a contingent right and that the ICICI Bank Ltd. was rank
with unsecured creditors to' take its dividend under Section 529(2) of the Act.
107. The Supreme
Court while setting aside the judgment held that corporate insolvency procedure
serve a variety of functions which include collective execution by unsecured
creditors, facilitation of corporate rescue and the enforcement of security
which would also include corporate morality. The liquidation proceedings are
collective enforcement mechanism for the benefit of unsecured creditors. The liquidation
is also an action for termination of company affairs. Applying pari passu
principles, creditors' claims are to be treated alike, a single point of time
at which the assets are liable 10 be quantified must be pinpointed, but then
subsequent events are also required to be considered. For those who desired to
go before the Company Court for dividend by relinquishing their security, in
accordance with the Insolvency Rules, Section 529 of the Companies Act will be
attracted. Under Section 47 of the Provincial Insolvency Act, a secured
creditors may realise his security and prove for balance due to him; after
deducting the net amount realized. Where a secured creditor relinquishes his
security for general benefit of the creditors, he may prove for ids whole debt.
Sub-section (3) provides that where a secured creditor does not either realize;
or relinquish his security, he shall before being entitled to have his debt
entered in the Schedule, state in his proof the particulars of his security and
the value at which he assesses it and shall be entitled to receive the dividend
only in respect of the balance due to him after deducting the value so
assessed. Sub-section (6) provides that where a secured creditor does not
comply with the provisions of this section, he shall be excluded from all
shares in any dividend. The second class of the secured creditors are those who
come under Section 529A(1)(b) of the Companies Act, who opt to stand outside
the winding up to realise their security. They also come, in certain
circumstances, go before the Company Court. The Apex Court held that though
Section 529A of the Companies Act contains a non-obstante clause but in
construing the provisions thereof, it is necessary to determination the purport
and object for which the same was enacted. Earlier the dues of the workmen were
not to be treated pari passu with the secured creditors. It is only after
insertion of Section 529A the workers' dues are pari passu with the secured
creditors.
108. it was held by
the Apex Court that secured creditors have a valuable righi which must be
preserved. The Parliament had by amending the provisions of the Companies Act
did not intend to take away respective rights of the secured creditors under
Section 529(1)(c) of the Companies Act or vis-a-vis unsecured creditors. It
does not envisage respective rights amongst the secured creditors. Section 48
of the Transfer of Property Act will not stand obliterated inter-se priority of
secured creditors. It does not get obliterated by merely responding to public
notice and that unsecured creditors are not to be placed at par with the
secured creditors. The filing of affidavits or proofs of claims does not amount
to relinquishing the security. In substance it was held that in submitting the
affidavits or proofs of the claims with the OL, for distribution of the claims
beyond realized assets, the inter-se contract with regard to the priority of
charges between secured creditors has to be enforced by the OL. If the OL
proceeds to sell the security the Court first has to pay the amount on which
the security was valued to the secured creditors out of the sale proceeds.
109. A consortium
agreement was entered into between IDBI; State Bank of India; and Allahabad
Bank on 27.2.1978 with the U.P. State Cement Corporation Ltd. (in liquidation).
Under this agreement annexed in the appeal filed on behalf of IDBI and also
annexed as Annexure No. 3 to the appeal filed by the State Bank of India
(O-22), the term loans were agreed, to be the first charge on the fixed assets
of the company (in liquidation). Schedule-III of the agreement for security
clause for equitable mortgage provided in para-1 that the loan amounts of the
lender together with interest compound and/or additional and/or penal interest,
liquidated damages, commitment charge, other charges, cost expenses and other
monies payable shall be secured by way of equitable mortgage by deposit of
title deeds on all the immovable properties of the company present and in
future and by charge by way of hypothecation of the movable properties of the
company present and in future. In the event of default in para-2 the lenders
reserved a right to take over the management of the company and for this
purpose in para-3 the company was required to execute undertaking for creating
registered legal mortgage (s) in English form whenever called upon by the
lenders, the company was also required to execute revocable power (s) of
attorney authorizing the lenders to execute on behalf of company a registered
moral mortgage (s) in English forms. The charge in para-4 all the lenders were
put subject to charge created or to be created by the company in favour of its
bankers on stocks of raw materials; semi-finished; finished goods; consumable
stores and books debts for its working capital requirement. Para-5 provided
that the charge in favour of lenders was to be first charge ranking pari passu
for the term loan of Rs. 400 lacs of ICIC1; Rs. 700 lacs of LIC; Rs. 300-lacs
of IFCI; Rs. 500 lacs of SBI and Rs. 500 lacs of Allahabad Bank. In schedule-5
the company and State Government agreed to furnish a joint undertakings to the
IDBI that they shall procure for the company at the appropriate time on terms
acceptable to lenders funds to meet shortfall in internal resources as
estimated to be available for financing the proposed project and short fall in
finishing overrun, if any, in the case of project.
110. The secured
creditors namely Allahabad Bank, LIC and SBI have submitted fresh calculations
of their dues taking into account the dates after which the term loans were not
serviced by the company (in liquidation) and the rate of interest in the
consortium agreement as well as penal interest. The court after hearing all
these secured creditors, who had given term loans to the company (in liquidation),
finds and holds that they are all entitled to their dues with the agreed rate
of interest to be compounded in accordance with the terms of the agreement upto
the date of winding up of the company (in liquidation). They are also entitled
to penal interest. In view of Central Bank of India v. Ravindra, they will not be entitled compounding of penal interest. The interest after
the date of winding up of the company (in liquidation) may be considered only if
sufficient amount is left after the dues of secured creditors and workmen are
computed on pari passu basis under Section 529A of the Act at simple interest
rate of 4% per annum. With regard to working capital loans the bank and
financial institutions have not addressed any argument as they are satisfied
with the amount adjudicated by the OL. The foal calculation of the debt of IDBI
Ltd, IFCI Ltd. and ICICI Ltd. (assigned to Kotak Mahindra Bank Ltd) a the
agreed rate of compound interest and penal interest (not compounded) given by
their counsel Shri Om Prakash Misi a is as follows:
KOTAK MAHINDRA BANK
LTD
First Loan- Rs. 400
lacs
Rate of interest- 12%
Penal interest- @ 1%
amounting to Rs. 547 lacs
Second Loan- Rs. 100
lacs (Rs. 75 lakhs disbursed) Rate of interest 12%
Penal interest @ 1%
amounting to Rs. 61.59 lakhs Total penal interest Rs. 609 lacs (penal interest
not compounded)
IFCI Ltd.
First Loan Rs. 300
loans
Rate of interest
11.85% per annum payable half yearly Penal nterest @ 2% per annum amounting to
Rs. 224 lakhs
Second Loan Rs. 100
lakhs
Rate of interest-
11.85% per annum payable half yearly Penal interest @ 2% per annum amounting to
Rs. 12.13 lakhs
Third Loan Rs. 24
lakhs
Rate of interest 14%
per annum payable half yearly Penal interest @ 2% per annum amounting to Rs.
11.26 lakhs Total penal interest Rs. 247 lakhs (penal interest not compounded)
IDBI Ltd.
First Loan Rs. 2300
lakhs
Rate of interest 11%
per annum payable half yearly Penal interest @ 0.5% per annum amounting to Rs.
303 lakhs
Second Loan Rs. 700
lakhs
Rate of interest
11.85% per annum payable half yearly Penal interest @ 2% per annum amounting to
Rs. 932 lakhs
Third Loan Rs. 100
lakhs
Rate of interest 14%
per annum payable half yearly Penal interest @ 2% per annum amouting to Rs. 163
lakhs Total penal interest Rs. 1398 lakhs (penal interest not compounded).
THE UTTAR PRADESH
POWER CORPORATION
111. Heard Shri W.H.
Khan, learned Counsel appearing for U.P. Power Corporation.
112. The Corporation
had filed an application (A-68) for directions to the OL to register their
claims. The application (A-70) filed by the Corporation under Section 530 of
the Companies Act in April 2002 to register their claims for payment of
electricity dues of Rs. 22,96,85,962.50. The OL was required to submit his
comments on the application.
113. Shri W.H. Khan,
appearing for the U.P. Power Corporation, submits that the corporation supplied
electricity to the residential colonies of the company tin liquidation) under
the orders of the Court. He submits that the Corporation is bound by writ of
mandamus and that electricity dues along with late payment surcharge for the
period after the date of winding up are to be paid by the OL in preference all
other claimants. The electricity bills prepared under the statutory provisions
must be paid by way of liquidation expenses to the corporation. If the Court is
not inclined to pay these wages as liquidation expenses, the payment of these
bills should be treated as secured debts.
114. Shri V.B. Singh,
Senior Advocate appearing for IDBI and IFCI; Shri Om Prakasli Misra appearing
for Kotak Mahindra Bank Ltd; Shri S.N. Verma, Senior Advocate appearing for
State Bank of India; Shri V.K.S. Chaudhari, Senior Advocate appearing for
Allahabad Bank and Shri J. Nagar appearing for Life Insurance Corporation, all
secured creditors, submit that the electricity dues incurred after the date of
winding up are not liquidation expenses to be paid in parity to secured
creditors and workmen's' dues under Sections 29, 529A and 530 of the Act. It is
submitted that the liquidation expenses or those expenses, which the OL has to
properly incur in preserving, realizing or getting in assets. They have relied
upon provisions of Sections 456, 457, which enumerating the powers of the OL
for preserving and sale of assets of the company (in liquidation) and Rule 338
of the Rules of 1959. Shi S.N. Verma has relied upon the proviso to Section
529(2) of the Act which reads as follows:
Provided that if a
secured creditor instead of relinquishing his security and proving for his debt
proceeds to realise his security, he shall be liable to pay, his portion of the
expenses incurred by the liquidator including provisional liquidator, if any,
for the preservation of the security before its realisation of the secured
creditor.
115. The directions
of the Court for continuous supply of the electricity to the residential
colonies of the workmen were made at the instance of the workmen, w ho were
living in the quarters. It is reported that about one third of the quarters
were occupied by the officers and employees of the District Magistrate,
Superintendent of Police and District judiciary of district Sonbhadra. The
directions were issued by the Court in liquidation proceedings for realization
of the house rent and electricity charges for the Government servant occupying
the company accommodations. The workmen, however, were exempted as it was found
that they are entitled for payment of the dues and they have not received
salaries since 12.7.1998.
116. In Textile Labour Association and Anr. v.
Official Liquidator and Anr. the ONGC Ltd. supplied gas
to Ambica Mills Ltd. in pursuance of the directions issued by the Supreme Court
on 17.10.1997 in IAs Nos. 168-78 by the Official Liquidator with directions
that out of the assets of the company (in liquidation) the dues of ONGC Ltd.
are required to be paid off first and the question or making any payment to any
other creditors can arise only out of the surplus, if any remaining, after the
full dues of ONGC Ltd. have been paid of. In a review petition, the Supreme
Court relied upon Supreme Court Bar
Association v. Union of India and held that the
Supreme Court in exercise of its powers under Article 142 cannot ignore any
substantive statutory provisions dealing with the subject. It is only residuary
powers supplementary and complementary to the powers specifically conferred on
the Court by Statutes exercisable to do complete justice between the parties,
wherever it is just and equitable to do so. It is intended to prevent any
obstruction to the extreme of justice, Paras 8, 9 and 10 of the report relevant
for the purposes of claim of the UP Power Corporation are quoted as below:
8. The effect of
Sections 529 and 529A is that the workmen of the company become secured
creditors by operation of law to the extent of the workmen's dues provided
there exists secured creditor by contract. If there is no secured creditor then
the workmen of the company become unsecured preferential creditors under
Section 529A to the extent of the workmen's dues. The purpose of Section 529A
is to ensure that the workmen should not be deprived of their legitimate claim
in (he even of the liquidation of the company and the assets of the company
would remain charged for the payment of the workers' dues and such charge will
be pari pass a with the charge of the secured creditors. There is no other
statutory provision overriding the claim of the secured creditors except
Section 529A. This section overrides preferential claims under Section 530
also. Under Section 529A the dues of the workers and debts due to the secured
creditors are to be treated pari passu and have to be treated as prior to all
other dues.
9. Therefore, the law
is clear on the matter as held in UCO Bank case that Section 529A, will
override all other claims of other creditors even where a decree has been
passed by a Court.
10. Therefore,
claims, if any, of ONGC will have to be worked out in accordance with Sections
529 and 529A of the Companies Act as well. The contention advanced on behalf of
ONGC by Shri Raju Ramachandran that if mandamus had been issued, it will
prevail over any law is not tenable and is rejected.
117. In order to
effectively, liquidate the company in which the payment to the workmen is a
condition precedent in settling the dues from the realization of the assets the
Court gave certain-directions to the UP Power Corporation not to disconnect the
electricity and to continue to raise the bills to the OL. If the electricity
was disconnected the workmen could have been restless as their families could
have seen untold hardships. The Court issued directions to supply continuous
electricity for the welfare of the workmen and their families.
118. In order to
avoid unrest and to calm down the workmen an interim, order was passed
directing that the UP Power Corporation be paid a sum of Rs. 7 Crores as 10% of
their dues as claimed by them along with late payment surcharge with an
undertaking that this amount shall be adjusted ill the final dividend. It now
appears that this payment was over and above made due to the UP Power
Corporation.
119. The question
that falls for consideration is whether in the given situation in which the
orders were passed to continue to provide electricity, at the instance of the
workmen the electricity charges are expenses properly incurred in preserving,
realizing or getting in assets as provided in Section 457(2) of the Act
illustrated in Rule 338 of the Rules of 1959. There was no mining or
production, carried out in the company (in liquidation) after the winding up
order. The then management continued upto 31.7.2001 and the OL did not pass any
order to carry out any business activity. The directions to supply continue
electricity were not given for the purposes of preserving, realizing or getting
in-the assets but by way of a facility to the workmen, to continue to live in
the accommodations till they are paid then dues. Article 21 of Constitution of
India provides that no one shall be deprived of his life and liberty except in
accordance with the law. The Supreme Court has interpreted the right to life
to, include to right to live with dignity. The delay caused in sale of assets
virtually deprived the workmen who were entitled along with secured creditors
to have charge over the assets to pay their dues. Though they could be asked to
vacate the quarters under Section 630 of the Act, it was not equitable or just
for the Court to have directed their eviction or to allow them to live without
the basic amenities like electricity, water, primary education, and health
services. The Court was under the constitutional duty to accept the request of
the workmen to provide them basic amenities for a decend and dignified life.
The directions to continue to supply electricity as such were issued for
effective liquidation of the company (in liquidation) and for proper and smooth
sale and transfer of the assets to the purchaser. The Court cannot foresee a
situation, which may nave arisen in the long process of liquidation in refusing
to provide basic amenities of the life to the workmen. The continuous supply of
the electricity o the residential accommodations provided to the workmen was
absolutely essential for effective liquidation of the company (in liquidation)
and thus these charges can be included along with the charges of security,
inspections, valuation, expenses of settlement claims committee etc., in the
liquidation expenses to be borne by the OL for effective winding up of the affairs
of the company mid for distribution of its assets. The proviso to Sub-section
(2) of Section 529 will not be attracted as it is applicable in a situation
where secured creditor, instead of relinquishing his security and proving for
his debts, proceeded to realise his security and for that purpose the
liquidator to bear the expenses for preservation of security before its
realization. The workmen cannot be treated to be secured creditors, who do not
relinquish their security and proceed to realize their debts as security.
120. the liquidation
expenses have not been defined in the Act or the Rules. The OL, however, is
required in law under Section 457 of the Act to protect and preserve the
properties of the Company (in liquidation). He has also powers under Rule
457(1)(e) to do all such other things as may be necessary for winding up lo
affairs of the company and distributing its assets. In order to sale the
properties, the OL may be required to employ security for protection and
dissolution of the assets, institution and defend the suit for prosecution to
carry on business of the company so far as may be necessary for beneficial
winding up of the company and to raise on the security of assets in requisite
money. All these powers under Section 457(1) are necessary for the purposes of
effective liquidation.
121. The judgment
cited by Shri V.B. Singh, Senior Advocate in Wonder Jupiterchit 1992 (74) CC
215 by Kerela High Court is as such not applicable lo the facts of the case.
The ratio of the judgment in Textile Labour Association (supra) is also not
attracted as in the said case the directions to supply gas were given by the
Apex Court on 15.4.1987 before the company was wound up by the High Court on
17.1.1997. The ONGC Ltd. as such was only a unsecured creditor. The mandamus
issued by the Supreme Court did not help ONGC Ltd. for recovering its dues as
the sale proceeds could be distributed only in accordance with Section 529 and
529A of the Act.
122. Having settled
the issue that the electricity dues are part of the liquidation expenses,
objections were raised with regard to correctness of the bills raised by the UP
Power Corporation Ltd. The State Government in the MOU had announced waiver of
the electricity dues of Rs. 110.10 crores. The UP Power Corporation found that
in fact these waivers are only to the extent of Rs. 76.40 crores. According to
Shri W.H. Khan, the waiver was only in respect of the electricity for
industrial use and not for domestic consumption. He has placed on record a
scheme by which the dues to the extent of Rs. 76.40 crores of the three
divisions were waived. According to affidavit filed by Slid W.H. Khan the
entire industrial dues were waived while keeping the amount for domestic
consumptions which were not waived. These amounts will not tie liquidation
expenses as the electricity prior to the date of winding up was riot Supplied
to the residential colonies under the orders of the OL or under the orders of
the Court.
123. Three meters
insalled at single points feeding the colonies were not maintained properly.
The reading were not regularly taken and the bills were initially prepared on
LMB-6 (industrial use). In his report the OL submitted:
6. U.P. POWER
CORPORATION LETD. : (Annexure No. 6)
There are two
divisions, responsible for supply of electricity to the various units of the
company under liquidation, namely Sonbhadra and Mirzapur division. No documents
or statement of power units consumed upto 31.3.1999 in various units and
colonies of the above said company was made available to the committee, despite
demand and explanation raised with the competent authorities of the respective
divisions of U.P. Power Corporation. In the above circumstances we
have-admitted 50% of the arrears so claimed.
For the period, April
1999 to May 2006, the following adjudications were undertaken:
a. Sonebhadra
Division
The units of
electricity consumed in residential colonies of Dalla unit is 603X40 from June
2001 to March 2006. From April 2006 onwards unit of electricity consumed as per
meter reading was less than 50% of 603840 units of electricity supply shown.
From perusal of statement of meter reading for the period under consideration,
it is abundantly clear that feeding was not undertaken on regular basis. As
such, the electricity bills for the units consumed have been claimed
arbitrarily. Under the given circumstances and after due consideration the
committee decided to pay 60% of the amount as claimed for Dalla residential
colony. The committee has not considered the claim with regard to Late Payment
Surcharge (LPS).
For other units i.e.,
Churk colony and Gurma colony, the committee has considered 100% of the claims
against the units of electricity consumed as per the statement submitted by the
Sonebhadra Division.
b. Mirzapur Division
The documents submitted
on affidavit for claim is upto may 2006. In reply to our queries the officers
of the Mirzapur Division submitted monthly consumption of power by the
ex-workers residing at Chunar residential colony and the Water Pump House at
Chunar. After verification 100% of the claimed amount for Power consumption
except Late Payment Surcharge (LPS) has been admitted for Chunar residential
colony. For the period April 1999 to 06.02.2002, we have observed that from
December 2002 to May 2006, bills were raised for 181315 units of power
consumption. The monthly consumption as claimed by the division from Feb 2002
to Nov 2002 were too high in variance and appears p have been made arbitrarily.
Considering the above facts the claim committee has admitted 66.33% of the
claimed amount for the period 7^th February, 2002 to 31^st May, 2006.
c. Jamuhar Tubewell,
Sonebhadra:
Details of monthly
electricity consumption were not made available to the committee. The claim
includes Late Payment Surcharge (LPS). As such, 50% of the amount claimed has
been admitted.
124. Shri W.H. Khan,
appearing for U.P. Power Corporation in support of objections/application
(O-9), has filed copies of the bills of September 2006, October 2006 and
November 2006 as well as copies of the bills upto 31.3.1994. During the course
of argument, it was found that these bills include the period prior to the date
of winding up. Shri W.H. Khan took time and has filed four supplementary
affidavits. The first supplementary affidavit sworn by Shri Ram Saran,
Executive Engineer, Electricity Distribution Division-1, Mirzapur is dated
17.1.2007. The second supplementary affidavit of the same officer is dated
22.1.2007. The third supplementary affidavit of Shri Gopal Singh, Executive
Engineer, EDD, Robertsganj, Sonebhadra is dated 23.1.2007 and that List
improved supplementary affidavit, filed during the course of submissions made
by Shri W.H. Khan, is affirmed by Shri Gopal Singh, Executive Engineer, EDD
Robertsganj, Sonbhadra. The details of the bills given in the last
supplementary affidavit are given as below:
(a) The total
principle amount upto 8.12.1999 is Rs. 22,760,039-67 & late payment
surcharge is Rs. 5,04,14,689-33, and from. 9.12.1999 to 11.10.2006 is Rs.
2,11,411,565-08 & late payment surcharge is Rs. 37,49,27,458-58 and from
12.10.2006 to Jan, 2007 is Rs. 7,367,365-57 & late payment surcharge is Rs,
570,110,576-18. The total principle amount comes to Rs. 241, 538, 970-32 and
total late payment surcharge comes to Rs. 570,110,576-18. True copy of the
calculation chart showing break up of the arrears, the principle amount and
late payment surcharge in respect of residential colonies of Churk, Dala &
Gurma is being filed herewith and marked as Annexure SA-1 to this affidavit.
(b) Similarly the
principle amount of Chunar residential colony upto 31.3.1999 is (-)1,73,505/-
and Jamuhar Tube Well is Rs. 1,09,198/-. From 1.4.1999 to 8.12.1999 of Chunar
residential colony the principle amount is Rs. 47,69,536 & late payment
surcharge is Rs. 2,45,844/-. The principle amount of Jamuhar Tube Well is Rs.
9, 61, 352/- & late payment surcharge is Rs. 66,025/-. For the period
9.12.1999 to 11.10.2006 the principal amount of residential colony of Chunar is
Rs. 4,48,93,442A & late payment surcharge is Rs. 3,58,72,607/-. The
principle amount of Jumuhar Tube Well is Rs. 98,70,487/- & late payment
surcharge is Rs. 79,99,687/-. For the period i.e. From 12.10.2006 to 31.1.2006
the principle amount of Chunar residential colony is Rs. 30,86,935/- & late
payment surcharge is Rs. 24,32,168/- and of Jamuhar Tube Well the principal
amount is Rs. 1,71,057/- and late payment surcharge Rs. 6,01,831/-. thus, the
total principals amount of Chunar residential colony upto 31.1.2007 comes to
Rs. 5,25,76,408 & late payment surcharge Rs. 3,85,50,619/- and of Jumuhar
Tube Well the principal amount comes to Rs. 1,11,12,094 & late payment
surcharge comes to Rs. 86,67,543/-. True copy of the calculation chart showing
break up of the arrears upto the principal amount and late payment surcharge in
respect of Chunar residential colony & Jamuhar Tube Well is being filed
herewith and marked as Anenxure SA-2 to this supplementary affidavit.
125. It has been
found that the supply of the electricity under the orders of the Court was
absolutely necessary to maintain industrial peace as well as to protect and
preserve the assets of the company (in liquidation). The UP Power Corporation
as such is entitled to the actual bills for supply of the electricity. It is,
however, found from these bills that a large component of these bills is of
late payment surcharge. Shri W.H. Khan submits that late payment surcharge is
part of statutory tariff and as such the Court may not deny the amount to the
UP Power Corporation. He has relied upon the UP Electricity Supply Code 2Q05
and the rate schedule of the UP Power Corporation Limited, as per Order dated
10.11.2004 of UP Electricity Regulatory Commission, effective from 1.12.2004.
Para 6.7 of UP Electricity Supply Code, 2005 and para 12 of Rate Schedule
LMV-2, effective from 1.12.2004 are quoted as below:
Uttar Pradesh Electricity
Supply Code, 2005
6.7 Late Payment
Surcharge
In case of dispute
regarding levy of surcharges, the licensee shall settle the dispute within in
two billing cycles from the date, of protest by the consumer after giving him
opportunity for reply and personal hearing.
Rate Schedule LMV-2
12.
Surcharge/Penalty:
(i) Delayed Payment
If the bill is not
paid by the due date specified therein, a late payment surcharge shall be
levied @ 1.25% per month upto first three months and subsequently @ per month.
Late payment surcharge shall be calculated proportionately for the number of
days for which the payment is delayed beyond the due date specified in the bill
and levied on the unpaid amount of the bill excluding surcharge. This surcharge
is without prejudice to the right of the Licensee to disconnect the supply or
take any other measure permissible by law.
(ii) Charges for
exceeding Contracted Demand:
If the maximum demand
in any month of the consumer having TVM/MDI/TOD meters exceeds the Contracted
Load, such excess demand shall be levied at twice the normal rate.
This additional
charge shall be without prejudice to the licencees right to take such other
appropriate action including disconnection of supply, as may be deemed
necessary to restrain the consumer from exceeding his contracted load.
126. The statutory
provision of levy of late payment surcharge in the UP Electricity Supply Code,
2005 made in exercise of powers conferred by Sections 50 and 181 read with
Sections 43 to 48, 50, 55, 59 of the Electricity Act, 2003 ( Act No. 36 of
2003) by the U.P. Electricity Regulatory Commission, provides that licensee
shall settle the dispute regarding levy of surcharges within in two billing
cycles from the date of protest by the consumer after giving him opportunity for
reply and personal hearing. The Rate Schedule (LMV-2) in para 12 (i) provides
for late payment surcharge @ 1.25% per month upto first three months and
subsequently @ 1.5% per month.
127. The electricity
supply was given to the colonies and Jamuhar Tube Well under the orders of the
Court. The OL did not have any money in his account for payment of these bills
until the amount was realised from the sale of the assets of the Company (In
Liq.). There was as such no question of default and willful non-payment by the
OL. The electricity supply was allowed to be maintained in the; extraordinary
situation. Although, the workmen and officers & employees of both the
Company (in liquidation) and State Government were in occupation of residences
in the colonies, the liability of payment of bills is of the OL under the
supervision of the Court and then to collect from the State Government
employees and unauthorised occupants. In the circumstances it cannot be said
that those workmen, who are not getting salaries and were virtually starving
and that the OL committed am default or were in a position to raise any dispute
with regard to quantum of the bills. The workmen have protested to these bills
on the ground that the electricity supply was limited to a few hours in a day
and that a large number of unauthorised connections were taken out of main
supply and further that a large number of stone crushers were operating
illegally from the same supply in connivance with the officials of the power
corporation, the Court, however, is not taking cognizance of these complaints a
it is not the appropriate stage to do so. The fact remains that the electric
supply was given in pursuance of the order of the Court and that OL or the
Court cannot be treated to be defaulter for payment of late payment sun urge.
The OL had no money in the account of the company and as such he was not in a
position and could not have paid or even raised a dispute The bills of the UP
Power Corporation given in supplementary affidavit of Shri Gopal Singh dated
20.2.2007 are admitted to proof except late payment surcharge. The OL shall
make payments of the actual bills except the late payment surcharge to the UP
Power Corporation upto the date of declaration of final dividend. In compliance
with these orders, the interim payment of Rs. 7 crores made to the UP Power
Corporation in compliance of the order dated 22.11.2006 shall be adjusted out
of the final payment. It is made clear that the OL will not be liable to make
payment of electricity charges after the declaration of final dividend. The
disbursement has been stayed by Hon'ble Supreme Court in SLP (Civil) No. 19132
of 2006 RPJ Mineral Pvt. Ltd. v. S.K. Saxena and Ors. on 9.2.2007. The final
disbursement of the amount, shall be made only after the decision and in terms
of the orders of the" Supreme Court. The electricity supply will continue
until the logical conclusion of these proceedings and the amount is disbursed
to the workmen after its final adjudication or under the orders of % the
Supreme Court, as the case may be.
UP CEMENT
VETAJVBHOGISAHKARI RIN SAMITI Ltd. CHURK (UPCVSRNL)
128.Shri W.H. Khan
and Shri Ravi Prakash Srivastava, appearing for the UPCVSRNL. have prayed for
condonation of delay for their application/objection (0-85) and have prayed for
a deduction of Rs. 34 lacs from the salary of the workmen of UP Cement
Corporation Ltd. (in liquidation) to lie paid to the society and further an
amount of Rs. 94 lacs is due against the members/employees, which have not been
deducted by the Company (in liquidation) may be got paid to the
appellant-society from the amount which the members/employees have to get after
settlement of their claims by the OL.
129. It is stated
that the UPCVSRNL is a cooperative society of the workmen established for their
welfare. The entire records of the society are under the lock of the OL in the
premises at Churk factory district Sonbhadra. The Claims Committee has
illegally and arbitrarily rejected the claim of the society. The rejection
order has not been served. He has prayed for condonation of delay. The cause;
shown is sufficient. The delay is condoned.
130. The cooperative
society was established for the benefit of the workmen, in 2003 (Vol 115) Comp
Cases 207 Bank of Baroda v. Nutan Mills Mills Employees Cooperative Credit
Society Ltd., Gujarat High Court in the matter of winding up of the company
held that the sums outstanding to the cooperative society of the workmen from
the company are to be treated as wages in arrears. Hon'ble Justice R.K.
Abichandani and Hon'ble Justice A.K. Trivedi, relying upon Baroda Spinning and
Weaving Mills Co. Ltd. v. Baroda Spinning and Weaving Mills Cooperative Credit
Society Ltd. (1976) 4 Comp Cas 1, held that the amount like a trust money and
that the credit society can make a preferential claim before the exercise of
distribution of the proceeds realised by disposing of the assets of the
company. The details of the defaults made by the workmen apparently on the
ground that the wages were not paid since Jule 1998 have been enclosed along with
affidavit of proof of debt1 submitted by Shri Prem Chandra, ADO Cooperative,
Chapka Block Robertsganj, District Sonbhadra/Liquidator, UPCVSRNL. From these
affidavits, it appears that Deputy Registrar. Cooperative Societies,
Vindhyachal Region, Mirzapur has passed orders under Section 72(2)(c) of the UP
Cooperative Societies Act 1965 for winding up of the cooperative society
appointing Shri Prem Chandra. ADO, Cooperative as the liquidator. The claim
also includes the details of the dues and the list of the workmen, who are
liable to pay these dues.
131. The amounts do
not exceed more than few hundreds and in some cases few thousands of the
workmen. The Court as such finds that these dues of the cooperative society (in
liquidation) have to be paid treating them to the workmen's dues as
preferential payment. The application/objection is allowed. The OL is directed
to deduct the amount from each of the defaulter workmen, list of which is given
along with 'proof of debt'. The interest, however, calculated @ 12% shall not
be payable to the cooperative society as these defaults cannot be said; to be
made by the concerned workmen intentionally. The defaulter-workmen were not
getting their wages since July 1998 and a such they will not be liable to pay
the interest both 6% calculated in the chart of the defaults as well as 12% in
calculation of the total amount annexed to the 'affidavit of proof of Shri Prem
Chandra, ADO Cooperative/Liquidator of the society.
132. Shri W.H. Khan
very fairly quantified this amount to Rs. 34 lacs to be deducted from the
salaries of the employees, a list of which is included with the 'affidavits of
proof' and further an amount of Rs. 94 lacs. The OL will deduct the interest
component of this amount and shall make the payment 10 the Registrar,
Cooperative Societies, UP for payment in the account of the UPCVSRNL (in
liquidation) to be utilised in the manner in which it is provided under the UP
Cooperative Societies Act.
LIQUIDATION EXPENSES
133. Out of total
sale proceeds, of Rs. 459 crores, the OL has made available for Rs. 435 crores
for distribution leaving 24 crores towards. liquidation expenses. The details
and break up of the liquidation expenses, have not been provided in his report.
134. Section 457 of
the Companies Act, read with Rule 338 of the Company (Court) Rules 1959,
provides for liquidation expenses payable out of assets in a winding up by the
Court. The assets of the company in a winding up be the Court remaining after
payment of fees and expenses properly incurred in preserving, realising or
getting in the assets, shall, subject to any order of the Court and to the
rights of the secured creditors, if any, be liable to the payments, the table
of which in descending order is provided in Rule 338. Firstly, the taxed costs
of the petition, then costs and expenses of the persons in making the companies
statement of affairs, then necessary disbursements of the Official Liquidator
other than expenses properly incurred in preserving, realising or getting in
the properties of the companies; the cost of any person properly employed by
the Official Liquidator; the fees to be credited to the Government under
Section 451(2) and the actual out of pocket expenses necessarily incurred by
the members of the Committee of Inspection, and sanctioned by the Court are to
be paid by the OL. In the present case following persons have claimed the
amounts which may be included in liquidation expenses:
1. Cost of security
in preserving assets.
2. Cost of valuation
of the assets.
3. Cost of the
advertisement for sale.
4. Cost of members of
asset sale committee.
5. Cost incurred by
the OL in transportation, preservation and making copies of the records for
being given to the workmen for securing employment as retrenched employees.
6. Cost of the
committee appointed for making inventories of the accommodation, occupation of
the workmen and for deciding their objections.
7. Cost of the
settlement claims committee.
8. The dues of UP
Power Corporation for domestic supplies and to tube well, both under the orders
of the Court as well as the orders of the local administration.
9. Cost of running
the schools and the salaries of teachers and other staff of such schools which
were taken over by the OL from the corporation.
10. Costs to be
incurred on salaries and wages of the officers and employees for maintaining
water and electricity supplies to the residential colonies.
11. Costs of salaries
and expenses of maintaining Churk and Dalla provident fund account.
12. Cost of salaries
and other expenses for maintaining dispensaries for health care of the workers.
13. Other
miscellaneous costs which were necessary for preserving assets of the company.
135. Secured
creditors have raised dispute with regard to payment of electricity and
salaries of the teachers & staff for water and electricity expenses and
staff for maintaining Churk and Dall provident fund account and the cost and
expenses for security staff of the company upto 31.7.2001 under the orders of
the then management of the corporation continuing even after winding up till
the OL took over the possession. These objections have been raised on the
ground that facilities given by the court to workmen, shop keepers, government
officers and other authorised or unauthorised persons living in the colonies or
occupying the company properties without any legal authority cannot be legally
incurred by the OL. The secured creditors submit that these facilities which
were essential services were incurred for the benefit of the workmen and that
the workmen must pay for these facilities from out of the amount reserved for
them. These expenses cannot be apportioned between the secured creditors and
the workmen as these expenses cannot be treated to be properly incurred for
preserving and maintaining the assets for their sale and distribution.
136. Shri Yogesh
Agarwal and Shri K.C. Vishwakarma appearing in Appeals/Objections No. 0-47
(primary school teachers of Chunar), No. O-48 (primary schools teachers of
Dalla), O-73 (Secondary school teachers and 11 staff of Churk). O-74 (Primary school
teachers of Dalla) and 0-75 (primary schools teachers of Churk); Shri Narendra
Mohan appearing for staff of the EPF trust; Shri P.N. Saxena appearing for
watch and ward stall and Shri Ashok Kumar Srivastava appearing for staff
maintaining electricity and water supplies submit that right of the employees
under Articles 19 and 21 the Constitution of India do not get suspended on the
winding up of the company order to effectively liquidate the company and for
protecting and preserving the assets, which was necessary that the workmen
should have occupied the houses as they were involved in preserving assets but
were also provided sufficient check in theft and dissipation of the goods of
the company which were spread over 80 kms areas including factory sides,
colonies and mines. The Court recognised these rights and both as ex workmen
and citizens of the country and allowed workmen to stay in the colonies and for
their health, education of their children and for maintaining power and water
supplies. The winding up of the corporation wholly owned and controlled by the
State does not cease to take away its liabilities towards the workmen until
they are paid their dues in full. The OL simply steps in shoes of the company
and has to safeguard the fundamental rights of the workmen. Shri. Yogesh
Agarwal has relied upon judgment in Kapila Hingorani's case 2003 (5) JT SC 1 in
support of the submissions and has further relied upon Article 23 of the
Constitution of India which prohibits 'begar'. He has also relied upon Article
21A of the Constitution of India which gives guarantees to the children upto
age of 14 years to receive free education. The legitimate expectation of the
workmen to continue to live in the colonies with dignity until they are paid
can only be defeated by overriding public interest. In the present case no such
public interest intervened in their rights to continue in the colonies and to
receive the basic amenities which are required for dignified life.
137. The primary
school of the company (in liquidation) at Churk has 600 students and the
primary school at Chunar has 257 students. The 10 primary school teachers and
employees of Dala; 06 primary school of teachers; staff of Chunar and 22
primary school teachers of Churk have relied upon the orders of the General
Manager of the company dated 24.3.2000 and court's orders dated iS.8.2001 to
allow these primary schools to continue. These schools were handed over to OL
on 3.8.2001.
138. It cannot be
said that running of these schools was business of the company (in
liquidation). The workmen were however living in the colonies, and their
children could not be ignored by the OL and the Court. The State under Article
21A of the Constitution of India guarantees free education the children upto
age of 14 years. The State has a corresponding duty to provide facility for
free education. The OL is an officer of the Central Government and Court are
also state within the meaning of Article 13 of the Constitution of India. The
OL as such could not have ignored fundamental rights of the children of the
workmen living in the colonies of education in the schools which were run by
the company (in liquidation). The business of the company under Section
445(iii) of the Act of 1956 includes all incidental activities. The OL as such
was under constitutional duty to provide facilities of primary school to the
children of the workmen. The Court had directed the Secretary of Education
(Primary) Government of UP to take over these schools under 'Sarva Shiksha
Abhiyan Scheme'. The Secretary of Education (Primary) Government of UP had
appeared in the Court and had informed that a proposal in this regard has been
put to the State cabinet. The State Government thereafter agreed to take over
these schools and consequential orders were issued. District Basic Education
Officer and District Magistrate, Sonbhadra directed the OL to hand over the
building and land of the primary schools so that salaries may be disbursed. The
request surprised the Court as the Government Order which translated the
decision of the State cabinet to take over the schools was not communicated to
the Court earlier than the confirmation of the sale of assets. The matter with
regard to taking over schools are still pending in special appeal in the Court.
139. The fundamental
right of the children to receive primary education in the schools, which are so
available, run in the premises of the company (in liquidation), which have not
yet been handed over to the purchaser, would compel the OL to pay the salaries
of the Assistant Teachers and employees of these primary schools. These
expenses as such will be charged on the liquidation expenses and shall be paid
as liquidation expenses by the OL until the schools are taken over by the State
or till the purchaser takes over these schools and makes arrangement for
education of the children. On such date, the liability of the OL to pay
salaries of headmaster, teachers and staffs, of these primary schools will come
to an end. The appeals/objections No. O-47, O-48, O-74, O-75 are allowed. To
that extent, the appeal/objection No. O-73 by Secondary School Teachers at
Churk, who was appointed as, Lecturer (Physics) visiting teacher cannot be
considered as all the secondary schools have been taken over by the State
Government and that salaries only those teachers were not disbursed who were
teaching classes for which the grant-in-aid was not given Shri Mahaveer in his
appeal/objection No. O-73 was visiting teacher appointed on a consolidated
salary. His salary as such cannot be disbursed by the OL and his
appeal/objection is accordingly dismissed.
UNSECURED CREDITORS
140. The
appeals/objections O-13 ( Executive Engineer, PWD, Auraiya and O-23 to 27, O-28
(Parash Nath Cement Pvt. Ltd), O-29 to 34, O-44 and by the Forest Department,
O-61 to 63, O-81 & 82, O-88 have been filed by the Government departments
unsecured creditors, who had completed works or made advanced for supply of
cement. Some of these unsecured creditors are dump/depot holders/transporters
with their claims against the company (in liquidation). These persons falling
in the category of unsecured creditors. Having parth admitted the
appeals/objections of the secured creditors and workmen and having separated
the amounts detailed in the order as liquidation expenses, there will be no
amount left to be paid to the Government departments and unsecured creditors
under Section 530 of the Act. The considerations of the appeals/objections of
secured creditors and workmen has not left amount to be paid in full to the
secured creditors and workmen and that a pari-passu deduction has to be made of
their admitted claims under Section 529A of the Companies Act 1956. In the
circumstances, the determination of admittance of proofs of their claims of the
State Government departments and unsecured creditors as well as their
appeals/objections are dismissed. Some of these appeals by Government
departments and unsecured creditors were decided separately and that all were
dismissed.
Nagar Panchyat
Churk/JAIL
141. Nagar Panchayat
Churk has filed their objections O-2 through Shri U.N. Shanna, Senior Advocate
assisted by Shri Ravi Shanker Prasad with regard to exclusion of 30 shops
constructed at old plot 933 Gata No. 933 new numbers 438/439 area 0.4746
hectares, on which the Nagar Panchayat Churk had constructed the shops after
sanction of the map by Sub Divisional Magistrate of notified area/prescribed
authority, on 15.4.1991 These objections are not to be considered and
adjudicated in these appeals/objections under Rule 164 of the Companies (Court)
Rules 1959. These will be considered separately considering the reply given by
Official Liquidator and JAL. Similarly objection 0-86 filed for separating the
area acquired and on which a Jail is being constructed shall be considered
separately
SHRI G.S. BIRDI,
VALUER
142. The
appeal/objections (O-53) is filed by Shri G.S. Birdi, a registered valuer on
the panel of the OL for settlement of the bills out of the liquidation lunds.
He has claimed Rs. 33 lacs as his fee for valuation based on rules framed under
the Wealth Tax Act in terms of the orders passed by this Court in special
Appeal No. 271 of 2002 by Grasim Industries Ltd. and Special Appeal No. 316 of
2003 by State of UP.
143. Shri Pankaj
Bhatia appearing for G.S. Birdi states that the valuation was carried out in
accordance with the rules in pursuance of the orders of the Court and thus the
amount may be charged to the liquidation expenses of the Company (In
Liquidation).
144. The assets of
the company (in liquidation) were valued by Shri A.F. Furgusan &. Company
in 1995 in pursuance of the directions of BIFR. Thereafter, Shri N.K. Agarwal,
a registered valuer valued the assets in the year 2001. These two valuations
were the basis of documents of sale prepared by the State Government. The third
valuation by Shri G.S. Birdie was in act revaluation of the assets for which he
had sufficient material available on record in the reports of A.F. Fargusan
& Company and N.K. 4 Agarwal. Shri G.S. Birdie did not carry out any fresh
measurements of the mines, factories, building, plant and machinery etc. He did
not prepared any fresh inventories of the stores and material lying on the
spot.
145. There is
difference between the valuation of the properties and 3 revaluation which is
based on earlier reports. In the cases of revaluation the valuer may only
verify the measurements and inventories of the earlier valuation and may
include such items which were left or have to be added to the valuation or
which may have stolen or destroyed. In any event of revaluation, the valuer is
not required to carry out the same extensive exercise. His job in revaluation
is much simple and is confined to verification rather than valuation.
146. Shri Pankaj
Bhatia, learned Counsel appearing for G.S. Birdie left the matter of settlement
of his bills to the discretion of Court. The discretion given to the Court in
such matters cannot be exercised arbitrary or unreasonably. It must be based on
sound judicial principles, which rest the claim on statutory provisions or
precedents. Shri Pankaj Bhatia did not cite any rule or precedent which may
give an indication to the court for exercising its discretion. In the
circumstances, the Court is left to exercise discretion on the basis of the
work done by the valuer taking into account the earlier two reports. The Court
finds that 50% of the amount claimed by him, which may include his expenses and
the fees of the services which he may have hired, would be sufficient to cover
his expenses and fees for revaluation of the assets of the company (in liquidation).
The OL will charge this amount to the liquidation expenses.
EMPLOYEES LOOKING
AFTER EPF TRUST DALL AND EPF TRUST CHURK
147. The officers and
workmen maintaining electricity supply, water supply, teachers in primary
school, staff of the dispensaries, workmen employed for security of the godowns
and stores by the management, and the officers and staff managing the Employees
Provident Fund Trust Churk and Employees Provident Fund Dalla have claimed
their salaries from the liquidation expenses. They have relied upon orders
passed by the Court by which the Court directed the electricity and water
supplies, schools and hospitals to function. I have already found that the
officers and staff maintaining water and electricity, primary education and
health are entitled to some token which is yet to be determined from the
liquidation expenses. The situation of employees looking after the employees
provident fund trust is slightly different.
148. The LPF Trusts
Dall and Churk were exempted from the provisions of the Employees Provident
Fund and Miscellaneous Provisions Act 1954. These trusts were run and managed
by the company (in liquidation) and the administrative expenses over and above
the expenses charged to the trusts were borne to the company (in liquidation). If
there was any shortfall in the payment of interest, the same was also required
to be borne by the company (in liquidation). Some complaints were made with
regard to irregularities in the trusts on which orders were passed on
19.5.2005, 14.7.2005 and 5.4.2006 under which the trusts were directed to be
handed over to the EPF Commissioner and audited by the Chartered Accountant
nominated by the EPF Commissioner. The accounts of these trusts were finalised
for which the EPF Trust Churk was given a sum of Rs. 50,000/- from the
liquidation expenses. The EPF Trust Dalla did not claim any amount. Shri G.S.
Rai, General Manager was Chairman and Shri A.K. Upadhyay, an employee of the
company (in liquidation) was Secretary of EPF Trust Dalla and was looking niter
the trust with three employees out of which one had retired. Shri Suhail Sultan
was Secretary of the EPF Trust Churk. He was looking after the trust with the
help of 06 employees. All these employees were working in the accounts
department of the company.
149. The accounts of
these trusts were audited and that objections made by1 the auditors were
removed and that by order dated 2.8.2006 these accounts were finally
transferred to the Regional Provident Fund Commissioner, Varanasi who was
called to the Court on about three occasions and were given detailed directions
with regard to the disbursement of the amount. On the advise of the RPEF
Commissioner, Varanasi the loan transactions out of these trusts were stopped
and final accounts were directed to be prepared. It is reported that the
accounts are being settled with the workmen and that out of 5000 employees who
are members of the trusts, almost 80% of the employees of the EPF Trust of Dall
and 50% employees of EPF Trust Churk have been paid EPF amount calculated upto
12.7.1998.
150. The employee's
share to be contributed to the trust from 13.7.1998 to 9.12.1999 from the wages
to be paid to the workmen under the EPF scheme, ilk workmen also entitled the
employer's share on this amount which was increased to 10% w.e.f. 1.5.1997.
Most of the workmen covered under the Employees Pensions Scheme 1995 and that a
contribution of 8.33% was.-abject to maximum of Rs. 417/- per month calculated
on the contribution of Rs. 5000/- (per annum) was payable to the pension fund.
151. Now since the
EPF Trust account has been closed, employee's share on the wages from 13.7.198
to 8.12.1999 may not be deducted and be directly paid over to the workmen. The
employer's share also has to be paid over to the workmen by the OL except 8.33%
of the amount subject to maximum of Rs. 417/- per month from out of employer's
shares is to be contributed tow aids the Pension Fund 1995, if the EPF
Commissioner, Dalla is entitled to employees to claim their pension w.e.f.
8.12.1999 i.e. the date when the company (in liquidation) was wound up by the
Court. The winding up date will be the date on which the employees will cease
to be a member of the EPF Trust and will exit from the EPF membership. The
trustees clerks and employees shall be paid wages after the date of winding up
in accordance with the rates given in para 189 of this judgment.
EMPLOYEES PROVIDENT
FUND
152. Shri D.K. Pandey
and Shri Dhanjai Awasthi appear for Provident Fund Commissioner and have filed
objections O-36, on behalf of Employees : Provident Fund Commissioner, verified
by Shri Gopal Ram, S.S.A. At S.R.O. : Varanasi. The workmen of the UP State
Cement Corporation (in liquidation) were contributing to Employees Provident
Fund Trusts at Churk and Dalla. I Both these trusts were exempted by the State
Government under Section 17(1)(a) of the Employees Provident Fund and Misc.
Provisions Act 1952 (EPF Act of 1952). the recommendations for grant of
exemption by the Regional Provident Fund Commissioner dated October 24, 1990
under : Section 17(1)(a) of the PF Act 1952 have been placed on record along
with the affidavit of Shri A.A. Siddiqui, Enforcement Officer, EPF
Organisation, Allahabad.
153. In the
liquidation proceedings, some of the workmen raised doubts about the manner in
which the trusts were functioning. By orders passed in the proceedings the
Court directed the Secretary of both the trusts namely Shri A.K. Upadhyay and
Shri Suhail Sultan to hand over accounts of the trusts to the Regional
Provident Fund Commissioner, Varanasi for audit by an auditor nominated by the
Provident Fund Commissioner, New Delhi. Both these accounts were audited and
discrepancies pointed out by the auditors were removed in a series of meeting
carried out under the orders of the Court. The entire securities with the
trustees were handed over to the Regional Provident Fund Commissioner,
Varanasi. The accounts were finally closed and directions were issued on the
recommendations of the Regional Provident Fund Commissioner, Varanasi not to
disburse any further loans and to finally settle these accounts. Thereafter,
detailed orders were issued by the Court, directing Regional Provident Fund
Commissioner, Varanasi for verifying the claims to finally settle the claims in
favour of employees by giving them appropriate interest in accordance with
provisions of the trust, h is reported that most of the accounts have been
settled. The court has not received any complaint from the workmen regarding
any shortfall in payment of the amount including the employees contribution and
interest. In these orders, the Court had made it clear that the Regional
Provident Fund Commissioner, Varanasi will pay the entire employer's shares and
interest which will be given to the workmen at the time of closing of the
accounts and that entire administrative expenses including the audit fees shall
be paid. The trustees informed the Court that the trust v as having an excess
amount realized from the securities as the statutory interest was i1 reduced by
the Central Government. The Employee's Pension Scheme 1995 is closely left with
the Employees Provident Fund Act 1952 and Employees Provident Fund Act 1970.
The part of the contribution was given in EPF Act 1995 for the purposes of
payment of pension payable after the date of superannuation of the workmen. The
prayer has been made on behalf of the workmen that although the accounts of
trust have been closed on the date of winding up, the contribution to EPF Act
1995 from the Act of EPF be made upto the date when the possession of unit was
taken over i.e. 31.7.2001 so that all the employees may get the benefit of
pension calculated upto July : 2001.
154. That Shri J.K.
Pandey, Assistant Provident Fund Commissioner, Sub Regional Office, Varanasi
submitted claims on behalf of both these trusts, winch were handed over to RPFC
Varanasi. The details of claims, claims, admitted and net dividend payable is
given as below:
SI Name Unit Claimed
Claim admitted Net divi dent
No. payabl e
1 J.K. Pandey Churk
& Claimed 2898-46508 Asst. Provident Chunar amount
Commissioner,
EPF-1952 100568970 Sub Regional 104-1971
Office, Varansi &
EPS-1995
Audit fee 238000
Total 100806970 10080
6970
2 J.K. Pandey Dalla
& Claimed 155471240 Asst. Provident Chunar amount
Commissioner,
EPF-1952 53797575 Sub Regional 104-1971
Office, Varansi &
EPS-1995
Audit fee 218000
Total 54015575 54015
575
3 J.K. Pandey Supple-
& Claimed 1157351
Asst. Provident
-mentry amount
Commissioner, Claim
EPF-1952 1133746 Sub Regional for Chu- Claim
Office, Varansi rk
and Processing
Dalla expenses
Audit fee 23605
Total 1157351 1157
351
Grand Total 446475099
15597 9896
155. Shri Ashok
Mehta, learned Counsel appearing for Official Liquidator, has not raised any
objections with regard to employer's contribution upto date of winding up on
8.12.1999 and the interest paid by EPFC Varanasi to the workmen on behalf of
the trust. He, however, has raised objections with regard to any claim towards
penal interest and damages under Section 7Q and damages under Section 14B for
default in employer's contribution claimed by the Assistant provident Fund
Commissioner, Varanasi.
156. Shri Dhananjai
Awasthi was asked to substantiate the claim with regard to penal interest under
Section 7Q and damages under Section 14B of, regard the EPF (MP) Act 1952. He
has filed an affidavit of Shri M.L., Verma, Assistant Accounts Officer (Legal)
EPFC Allahabad and thereafter on the direction of the Court, an affidavit of
Shri A.A. Siddiqui, Enforcement Officer, EPFC Allahabad has been field. A
perusal of the affidavit of Shri A.A. Siddiqui shows that the interest on the
PF Contribution paid to the workmen in case of both the trusts is calculated on
the basis of the interest notified by the Central Government. The rate of
interest calculated and paid to the workmen is as follows:
"CALCULATION OF
INTEREST PAYABLE TO THE P.F. MEMBER OF U.P. STATE CEMENT CORPORATION LIMITED,
CHURK SONEBHADRA, P.F. CODE No. UP/423 Year Rate of Intt. P.F. Opening Interest
Closing Balance P.A. Contribution Balance Payble 97-98 12% 44462622 0 1774505
1774505 98-99 12% 56206348 44362622 9470899 53833521 99-00 12% 0 111814374
13417725 125232099 00-01 11.25% 0 125232099 14088611 139320710 01-02 9.50% 0
139320710 13235467 152556177 02-03 9.50% 0 152556177 14492837 167049014 03-04
9.50% 0 167049014 15869656 182918670 04-05 9.50% 0 182918670 17377274 200295944
05-06 8.50% 0 200295944 17025155 217321099 06-07 8.50% 0 217321099 18472293
235793392 1340870709 135224422 1476095131
CALCULATION OF
INTEREST OF PAYABLE TO THE P.F. MEMBER OF U.P. TATE CEMENT CORPORATION LIMITED,
DALLA, SON EB IADRA, P.F. CODE No. UP/4427
Year Rate of Intt.
P.F. Opening Interest Closing Balance P.A. Contribution Balance Payble 97-98
12% 27423622 0 1096945 1096945 98-99 12% 26373953 28520567 526846 60163165
99-00 12% 0 60163165 7219580 67382745 00-01 11.25% 0 67382745 7580559 74963304
01-02 9.50% 0 74963304 7121514 82084848 02-03 9.50% 0 82084818 7798058 89882876
03-04 9.50% 0 89882876 8538873 98421749 04-05 9.50% 0 98421749 9350066
107771815 05-06 8.50% 0 107771815 9160604 116932419 06-07 8.50% 0 116932419
9939256 12687167 0
726123458 73074101
799197559
157. The calculating
the rate of interest as given above on the opening balance of the PF
contribution of Rs. 4, 43, 62, 622/-; closing balance as on 20.3.2007 conies to
Rs. 147, 60, 95, 131/- for EPF Trust Churk, Sonebhadra PF Code UF 423 and on
the, opening balance of Rs. 2, 74, 23622/- and closing balance as on 20.3.2006
comes to Rs. 79, 91, 97, 559/- in respect of EPF Trust Dal la, Sonebhadra PF
Code UP/4427.
158. There is no
dispute with regard to employer's contribution, administration charges and
audit fees, which have been admitted in full amount to the PF Commissioner. The
dispute only centres about penal interest under Section 7Q and damages under
Section 14B of the EPF Act 1952.
159. The EPF rust
Churk and Dalla were exempted trusts maintained by the company(in liquidation).
The company was wound up on the recommend of BIFR on 9.12.1999 and appeal
against the winding up order was dismissed. The company was suffering severe
losses and closed its production since 1994. The wages were paid from the
grants given by the State Government and thus the employer's contribution was
not deposited in the trust. Thereafter the possession of the unit was taken
over by the Official Liquidator in July 2001 and process of sale continued upto
November 2006. Section 7Q of the EPF Trust 1952 provides that the employer
shall be liable to pay simple interest @ 12% per annum and at such higher rate
as may be J specified in the scheme and any amount due from him under the Act
from the date it becomes due is provided higher rate of interest specified in
the scheme shall not exceed to lending rate of interest charged by any
scheduled bank. Section 14B of EPF Act 1952 provides for recovery of damages on
the employer making default in making contribution to the fund. For this
purpose a notice has to be given, to the employer and opportunity of hearing
has to be given before levying and recovering damages. Section 17(1-A)(a)
provides that where exemption has been granted to any establishment under
Clause 17-A(a) the provisions of Section 6, 7A, 8 and 14B shall, so far as may
be, apply to the employer of the exempted establishment in addition such other
conditions as may be specified in the notification granting such exemption and
where the4 employer contravenes, or makes default complying with any of the
said provides, or conditions or any other provision this Act, he shall be
punishable under Section 14 as if the said stablishment has not been exempted
under the said Cause (a).
160. Shri Dhananjai
Awasthi submits that as soon as default was made, the exemption will be deemed
to be withdrawn and that the statutory liability under Section 7Q and 14B will
automatically come into play.
161. I do not find
any good ground to accept the prayer of payment of penal interest and damages
under Section 7Q and 14B of EPF Act 1952. Section 7Q of the EPF Act 1952 is a
penal provision applicable where the employer makes default on any amount due
under the scheme from the date when the amount becomes due at the rate of 12%
per annum or as such hi-her rate as is being specified in the scheme, which
shall not exceed lending rate of interest charged by the scheduled bank.
Firstly the scheme does not provide for payment of any such interest and
secondly in the present case the default was not intentional. Although the Official
Liquidator steps in shows of the employer where the industry stooped production
and cannot be rehabilitated and has to be wound up. The question of payment of
penal interest does not arise. Section 7Q is as such clearly inapplicable and
in any case the rate of 12% interest from the date when the amount fall due
cannot 1 be awarded out of sale proceeds. This amount will not be paid to they
workmen to be part of Section 529, and to be made part of the wages to be paid
IO the workmen under Section 529(3)(b) of the companies Act 1956. The court as
such cannot allow the amount realized from the assets to be distributed in
accordance with the Section 529A to be included in wages of the workmen.
162. The object and
purpose of damages under Section 14B were considered by Supreme Court in AIR
1998 SC 688. The vires of Section 14B was upheld on the ground that it provides
a show cause notice and a reasoned order after following principle of natural
justice and giving a reasonable opportunity of hearing (para 28) before the
damages can be levied. This Court in the Northern India Press Works v. Regional
provident Fund Commissioner 1983 LAB I.C. 1314, the Delhi High Court in
Atlantic Engineering Services (P) Ltd. N. Delhi v. Union of India and Anr. 1979
LAB. I.C. 695 & Supreme Court in Organo Chemical Industries and Anr. v. Union of
India and Ors. AIR 1979 SC 1803 held that though there is no
limitation of power under Section 14B for levying of the damages is to be exercised
by giving opportunity of hearing to the concerned party. Same view was taken in
Regional Provident Fund Commissioner U.P. v. Allahabad Canning Co. Bamrauli
Allahabad 1978 LAB I.C. 998 and Kerela High Court in Calicut Modern Spinning
& weaving Mills Ltd. 1982 LB I.C. 1422.
163. In the resent
case the employer was not at fault in failing to deposit as there was no
production nor there was any special grants given by the State Government. The
trusts were managed by the company and not by EPF Commissioner. The trusts were
managed by the company and not by EPF Commissioner. There was no notice given
to the management or the Official Liquidator nor any proceedings were taken or
any reasoned order passed to impose damages under Section 14B of the EPF Vet,
1951. The claim of the Provident Fund Commissioner as such under Section 7Q and
Section 14B of EPF Act, 1952 is rejected. The amount claimed towards employer's
contribution and administrative expenses including audit fee is held to be
admissible and has been so admitted to proof by the Official Liquidator.
Appeal No. 8574 of
2007 (O-57) filed by C-14 Jai Ram Sharma and 11 others.
164. Heard Shri K.C.
Vishwakarma for the 12 applicants. The applicant Nos. 1 to 11 are claiming to
be working even after the date of winding up for supplying electricity to
Cement Factory Colony Chunar and Jamohar Water Pump. The applicant No. 11
himself to be Executive Engineer and appears to have certified that the
applicant Nos. 1 to 10 have worked regularly. The application was forwarded by
the Sub Divisional Magistrate, Chunar to the Official Liquidator. The applicant
No. 12 is the Churk Adhikari Kalyan Samiti.
165. Shri K.C.
Vishwakarma submits that Sub Divisional Magistrate has verified that the
applicant Nos. 1 to 11 have worked for supplying electricity to the residential
colonies of the company at Chunar.
166. All the workmen
engaged in maintaining supply of water and electricity had approached the Court
in the year 2001-02 and were given specific orders to continue to work to
maintain the water and electricity supplies and that a provision was made to
pay Rs. 1000/- per month by way of interim measure. These applicants were not
included in that group and that they have not been receiving the benefit of Rs.
1000/- per month. The Court therefore, has doubt over their working as they
were never claimed may amount for maintaining water and electricity supplies
from 1999 to 2006.
167. Shri Yogendra
Singh, who claims himself to be Executive Engineer in 2001 also has not
submitted any proof and was never authorised by the Official Liquidator or the
Court to function as such the claims of these workmen and Shri Yogendra Singh
for payment after the date of winding up are as such rejected. For the period
before the date of winding up they will not be cow red by the decisions taken
with regard to other workmen and employees.
168. Shri Viswakarma
then submitted that the officers, who were not working in supervisory capacity
and are to be treated workmen, are also entitled to be CCI scales, they were
given to them in 1979 and 1986 and approved to be implemented for further
revision w.e.f. 1.4.1996. He has relied upon a letter dated 11.8.1998 sent by
the Senior Personnel Officer, Headquarters, U.P. State Cement Corporation Ltd.
(in liquidation) for implementing the Cement Corporation of India's pay scale
w.e.f. 1.4.1996. The consequential orders were not passed and that on the date
of winding up they were not receiving the wages in terms of the CCI pay scales.
169. These officers
were receiving central dearness allowances. They are claiming Industrial
Dearness Allowance, for which they have not shown any entitlement and
implementation. The claims for IDAR arc also not applicable and are rejected.
170. There are many
categories of workmen, who are claiming entitlement of higher wages. The Court
is not required to adjudicate whether they were entitled to such wages and will
rely last wages drawn by the claimants. Wherever the Wage Board Award and CCI
scales were not implemented, the workmen/employees will not be entitled to the
same. The appeal/objection is disposed of accordingly.
Appeal No. 11527 of
2007 (O-59) filed by Harish Chandra Mishra and 7 Ors.
170. The claims of
these workmen will be considered in accordance with the general directions given
for calculating the wages. These workmen have claimed that they were looking
after the water and electricity supply. They however, have not furnished any
proof for the same. They had not approached earlier to the Court and are not
workmen who are directed to continue to work either by the Official Liquidator
or the Court. The payment, from the liquidation expenses will be made only to
those workmen, who aim, permitted by the Official Liquidator or the Court to
continue to work to supply water and electricity to the colonies.
Appeal No. 14012 of
2007 (O-66) filed by Ram Bali Singh and 05 Ors.
171. The claim of
these applicants, who were working as workmen at Chunar Cement Factory Colony
for supply of water and electricity were allowed to continue and the payment of
Rs. 1000/- on an interim basis half be governed for the date prior to the date
of winding up by the orders passed as above for all the workmen and for a
period after the winding up, they will be paid Rs. 3000/- per month for skilled
workmen and Rs. 2000/- per month for unskilled workmen after making deduction
the amount already made to them by the Official Liquidator.
Appeal No. 37580 of
2007 (O-63) filed by Yogendra Kumar Mathur and three Ors.
172. The
claims/objections of these workmen are covered by the general direction issued
in this order. The Official Liquidator will calculate their claim accordingly.
Appeal No. 14009 of
2007 (O-65) filed by Chhavi Nath S/o Late Mangaroo, resident of
Village-Bakiabad, Post Chunar, District Mirzapur.
173. The applicant
has claimed arrears on the basis of Labour Court Award passed by H.M. Misra,
dated 27.3.1985 in Adjudication Case No. 19 of 1984 by which it was held that
his services were wrongly terminated on 23.6.1980.
174. The Court has
already accepted all the awards under the Industrial Dispute, Act and
adjudications by the Labour Court. The Official Liquidator will consider his
implication accordingly.
Appeal No. 14014 of
2007 (O-67) filed by Haridas son of Dukhi Seth Resident of Qtr No. SF-1/1/50
Chunar Cement Factory Colony Post Chunar District Mirzapur.
175. The applicant
has claimed arrears on the basis of Labour Court Award passed by H.M. Misra,
dated 27.3.1985 in Adjudication Case No. 19 of 1984 by which it was held that
his services were wrongly terminated on 23.6.1980.
176. The Court has
already accepted all the awards under the Industrial Disputes Act and
adjudications by the Labour Court. The Official Liquidator will consider his
application accordingly.
Appea No. 15367 of
2007 (O-69) filed by Nand Kumar Mehta and 103 Ors.
177. The workmen of
Dalla, Sonbhadra are covered by Award in Adjudication case No. 9 of 1984
decided by H.M. Misra, Presiding Officer, Industrial Tribunal-I UP Allahabad
dated 22.1.1985 by which it was held that these workmen were entitled to
regularisation. The matter has been dealt with and that all Labour Court awards
and adjudications have been accepted to be considered and award by the Official
Liquidator. The appeal is disposed of accordingly.
Appeal No. 16S92
& 16897 of 2007 (O-72) filed by Ramesh Kumar Singh, Proprietor, Vidyaman
Cement Agency, Jamui Chatti, Chunar, Mirzapur.
178. The applicant is
proprietor of M/s Vidyaman Cement Agency and was an agent of the Company (in
liquidation). He deposited Rs. 10,000/- as security and claimed Rs. 25,000/-
which has been accepted partly for Rs. 10,000/ the principal amount deposited
by him.
179. The rejected
part of the claim will fall in the category ot unsecured creditors. Alter
excluding liquidation expenses and payment 10 secured creditors and workmen
under Section 529 and 529A on pari passu basis, nothing will be left for
payment to unsecured creditor. The appeals are accordingly rejected.
Appeal No. 18040 of
2007 filed by Smt. Dulari Devi and 8 Ors. And Appeal No. 18651 of 2007 filed by
Radhey Lal and 21 Ors.
180. These
appeals/objections have been filed by Smt. Dulari Devi and 8 others,
non-teaching staff of Primary School, Sectors A, B, C, D, Dala, Sonbhadra and
Radhey Lal and 21 others. In appeal No. 18651 of 2007, the application No. 1 is
Principal applicant Nos. 2 to 17 are Assistant Teachers and 10 to 22 are peon
of Cement Factory Primary Pathshala Churk Sonbhadra. These primary teachers
were allowed to continue to serve to primary schools or teaching to children of
the Cement Factory Colonies. The orders were passed to allow them to continue
to serve. They however were not paid salary. It has been decided as above that
their services were essential for preservation of the assets and also to serve
the fundamental rights of the children of the residents of the colonies. The
Principal as such will be paid at he rate on which the Supervisory staff will
be paid i.e. Rs. 5000/- per month from the date of winding up to the date of
declaration of final dividend : the teachers will be paid as skilled employees
and peon as unskilled employees at the rate of Rs. 3000/ and Rs. 2000- per
month respectively. For the period prior to the date of winding up they will be
paid wages in accordance with the wages, which they were received. The
applications are accordingly disposed of.
Appeal/Objection No.
47487 of 2007 (O-91) filed on behalf of Awadesh Pratap Singh and 8 Ors.
181. Heard Sri O.P.
Singh, learned Counsel for the appellant/objectors. By this application, Shri
Awadhesh Pratap Singh and 8 others, the Principal and Teachers of Junior High
School Ghurma and Cement Factory Inter College Ghurma, district Sonbhadra,
established and run by the company (in liquidation), have prayed to
recall/modify the order dated 29.11.2006 by which the Court noticed that
Jaiprakash Associate Ltd. the confirmed purchase the assets of the company (in
liquidation) want to run the school through 'Jaiprakash Sewa Sansthan'. They
however do not have any plan to disturb any school upto academic year 2006-07.
It was thereafter observed in para 17 that let individual teachers apply for
either transfer of their seruas or for adjustment of their services in any
other state schools. They were also given liberty to negotiate with JAL, in
case they are upto the standaids for retaining their services on fresh terms
and conditions. The Court however was not inclined to give any protection order
in the matter.
182. It is contended
that the land namely plot No. 1329 area 12.375 acres was acquired by the State
Government by notification dated 28.9.1979 under Section 4(1) read with Section
17(4) and Section 6 of the Act, for the purposes of establishing residential
quarters and for school building for the workmen working in the mines of the
U.P. State Cement Corporation Ltd. Churk (in liquidation) in Markundi (Ghurma).
The copy of the khatauni certified by the Survey Tehsildar dated 11.12.2006,
records a 'school' of Gurma Khadan-1. These documents go to show that the land
was acquired for the Company (in liquidation) for school building and was
entered as school in revenue records. The School however did not have any
independent legal personality. It was established as Junior High School on
13.6.1979 and up graded as High School on 19.3.1980 and thereafter and
Intermediate without any grant in aid on 4.3.1983. There was no society or
trust constituted to establish an independent legal personality to claim the
status independent from the Company (in liquidation).
183. The applicants
have prayed a direction to the State of U.P.; District Inspector of Schools,
the Administrator, U.P. State Cement Corporation Ltd. Inter College Ghurma,
Sonbhadra; and Official Liquidator, U.P. to establish the applicants' college
at its own level and not to change the nature of land, building of the college
and the fund (in the form of Grant-in-Aid) to the applicants' college as well
as to direct the respondents not to interfere in the functioning of the
applicants w.e.f. 1.7.2007 onwards under the supervision of control of J AL and
by any other private party.
184. Upon hearing
Shri Ashok Mehta, appearing for Official Liquidator, I do not find that the
Company Court has any such jurisdiction in liquidation proceedings to pass such
orders. Once the assets have been sold, the sale was confirmed and part possession
of the assets have been given to the purchaser, the arrangement to continue the
school till the academic year was made with the consent of purchaser. The Court
has no jurisdiction to pass any order either directing the State Government or
the JAL to run the school with the grant-in-aid of the State Government. The
application is accordingly rejected with liberty to the applicants to seek
their remedies, if they have any, in accordance with the law, before the
appropriate forum.
Appeal/Objection No.
16878 of 2007 (O-71) tiled on behalf of Hari Shanker Prasad and 26 Ors. and
Appeal/Objection No. 19922 of 2007 filed on behalf of Paras Nath Singh and 15
Ors.
185. There two
appeals/objections filed by Shri Hari Shanker Prasad and 26 others and Paras
Nath Singh and 15 others claiming to be workmen looking after watch and ward of
the Chunar Cement Factory Colony, P.S. Chunar, District Mirzapur. They have
been treated by Official Liquidator as workmen upto the date of winding up of
the company (in liquidation) i.e. Upto 9.12.1999. These workmen have now
claimed salary from 10.12.1999 to 27.7.2001 on the ground that they had been
working as security guards/watch and ward under the supervision of Senior
Security Officer. 169. The Official Liquidator took possession of the assets
under the orders of the Court on 27.7.2001. On the date of winding up their
services were dispensed with under Section 445(3) of the Companies Act 1956.
186. Their claim is
in two parts (a) wages, retrenchment compensation, bonus, etc. as workmen upto
date of winding up; and (b) salary from 10.12.1999 to 27.7.2001 under the
supervision of the Senior Security Officer of the Company (in liquidation).
187. So far first
part of the claim is concerned, the applicants are entitled to the same relief
as other workmen have been provided in the order. The claim of salary the
second part from 10.12.1999 to 27.7.2001 cannot be accepted. The appellants did
not work under the orders or in supervision of the Official Liquidator. The
Official Liquidator did not allow them to be engaged as watch and ward staff
after the date of winding up. They never approached the Court either by
themselves or through their supervisors seeking permission of the Court having
custody of the assets of the company (in liquidation) under Section 456 of the
Companies Act 1956 to continue to work. The Senior Security Officer had no
authority thereafter to deploy them or to verity their work and performance.
Their claim in the second part is rejected and their appeals to that extent is
dismissed.
188. It may be
noticed that some of the claimants/objectors have not titled their
representations against the report of the OL as Company Appeal under Rule 164
of the Company (Court) Rules of 1959. Most of these appeals were titled as
company applications or objections. The court has tried to avoid the
technicality and has treated all these applications/objections as company
appeals and has decided all of such applications/objections/appeals. In some of
the
applications/objections/appeals,
the orders have been passed separately. In this judgment, the Court has
considered the applications/objections/appeals of the secured creditors, UP
Power Corporation, Employees Provident Fund Commissioner, UP Cement Vetanbhogi
Sahkari Rin Samiti Ltd. and some of the appeals filed by the workmen.
189. In Order to
clarify the OL is directed that all those workmen/employees, who were engaged
either by the orders of the Court or otherwise for the purposes of maintenance
of employees provident fund accounts, schools and colleges (other than those
who are paid from the Government grant regularly) hospitals & dispensaries,
water and electricity supplies, will be paid from out of liquidation expenses
to the extent that the supervisory managerial category persons namely trustees
of the two employees provident fund trusts, doctors, principals and the general
manager, who were asked to look after the assets by an interim arrangement, as
salary @ Rs. 5000/- per month. The other skilled employees including teachers,
pharmacists, nurses and clerks (a Rs. 3000/- per month and all other workmen @
Rs. 2000/- per month (subject to deduction of Rs. 1000/- per month paid to the
employees maintaining water and electricity upto date of declarantion of final
dividend).
190. With this judgment,
the Court has concluded the hearing on the objections appeals for admitting the
'proofs of debts', dismissed or allowed by the OL n part. All the
applications/objections/appeals are consequently partly allowed except those,
which have been rejected by the Court. The OL will proceed to recalculate the
amount for distribution, taking into account the direction is given by the
Court. He will first separate liquidation expenses and the amount for taxation
and audit and then work out the overriding preferential claims and apply the
pari passu rule under Section 529A. It is only, if some amount is left over and
above the liquidation expenses then the preferential claimants will be entitled
to the interest. The application/objections/appeals of the officers and
unsecured creditors are according dismissed.
191. The OL will keep
Rs. 4.59 crores i.e. one percent of the total sale consideration with him for a
period of one year for any claim of the workmen or other category, left out by
either inadvertence or which could not be filed on account of delay or other
unforeseen circumstances. This amount shall be disbursed subject to the orders
of the Supreme Court after the period of one year on pari passu basis between
all the claimants in accordance with the judgment. The OL will also notify the
summary of this judgment within two weeks in all leading news papers, having
wide circulation in and around the districts Mirzapur and Sonebhadra for the
benefit of he workmen, as well as the orders of the Supreme Court by which the
disbursement has been stayed.
192. The OL is
reminded that in RPJ Mineral Pvt. Ltd. and Anr. v. S.K. Saxena, Official
Liquidator and Ors., Hon'ble Supreme Court, while hearing Special Leave
Petition (Civil) No. 19132 of 2006, arising out of judgment dated 27.10.2006 in
Civil Appeal No. 1239 of 2006 and the orders dated 20.9.2006, 5.6.2007 and
11.10.2006 in Misc. Company Application No. 4 of 1997, has passed an order on
9.2.2007 "no money will be disbursed during the pendency of the special leave
petition." The Official Liquidator will comply with the orders of the
Hon'ble Supreme Court. He may consider and adjudicate the claims/proofs of
debts in tennis of this judgment but shall not disburse the amount during the
pendency of the special leave petition in Supreme Court, and will comply with
the orders of the Supreme Court, in this regard.
OFFCIAL LIQUIDATOR OF M/S U.P. STATE CEMENT CORP LTD
Complaints - AMOUNT OF FUND NOT YET RECD.
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OFFCIAL
LIQUIDATOR OF M/S U.P. STATE CEMENT CORP LTD
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AMOUNT
OF FUND NOT YET RECD.
SIR
MY P.F NO IS 423/4441 WITH THE SAID COMPANY SITUATED AT U.P.UNDER THE CONTROL
OF U.P. GOVT.DESPITE OF SEVERAL REQUEST THE FUND HAS NOT BEEN PAID TO ME YET
. IT IS PENDING FOR THE LAST 08 ( EIGHT )YEARS . THE MATTER IS PENDING WITH
R.P.F.C.VARANASI(U.P.)KINDLY HELP ME TO GET MY DUES URGENTLY.
REGARDS
SANJAY VERMA
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As reported at ptinews.com on
17 July, 2009
New Delhi, Jul 17 (PTI) The Chief Justice of India and the Supreme Court cannot be two
distinct entities, the Central Information
Commission has held directing the registry of the apex court to
provide information
to anRTI
applicant even if it is held by the office of the Chief Justice.
"The Institution and its head cannot be two
distinct Public Authorities. They are one and the same. Information
therefore available with Chief
Justice of India must be deemed to be available with the Supreme Court of
India," Chief Information
Commissioner Wajahat Habibuallah said.
The Commission was hearing the plea of RTI
applicant 77-year-old P K Dalmia who sought to know the fate of
hiscomplaint
, filed with the Chief Justice
of India, of alleged malpractices by a designated company judge Sunil Ambwani
in the liquidation of UP State Cement Corporation Limited
As reported at on 12 August,
2009
http://www.indiainfoline.com/Markets/Company/Fundamentals/Management-Discussions/Jaiprakash-Associates-Ltd/532532
Jaiprakash
Associates Ltd
BSE:
532532 | NSE: JPASSOCIAT | ISIN: INE455F01025
Market Cap: [Rs.Cr.] 32,273 | Face Value: [Rs.] 2 | Industry: Construction
Management Discussions
Forming part of the Report of
Directors for the year ended March 31, 2009
During the year, Chunar and Dalla
cement plants owned by Uttar Pradesh State Cement Corporation Ltd. (In
Liquidation) (UPSCCL) which were purchased by your Company through High Court,
have commenced production. The comprehensive, repair, rehabilitation and
modernization programme carried on by the Group has been successfully
completed. 2 MTPA cement capacity with new kiln at Dalla, UP has been
successfully commissioned along with captive power plant of 27 MW.
