2008 (3) TMI 483 – HIGH COURT OF GUJARAT – [2008] 84 SCL 457 (GUJ.) – – Winding up – Powers of liquidator – Held that:- Since the State Government has discharged the liability of the Mills Company towards secured creditors and labourers and there is still surplus fund with the Official Liquidator in the account of GSTC and since the State Government has undertaken to discharge the liabilities, if any, that may arise in future, there may not be any objection on the part of the Official Liquidator in handing over possession of the immovable properties in question to the State Government and even if the objections raised by the Official Liquidator in his report, they are not sustainable either on facts or in law.
The Official Liquidator is directed to hand over possession of the properties in question of Priyalaxmi Mill, Vadodara as well as Monogram Mill, Ahmedabad to the State Government as the State Gov-ernment is the only secured creditor and sole shareholder/contributory
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he appropriate order in this regard will be passed after submission of accounts before the Court under separate report. – COMPANY APPLICATION NO. 562 OF 2007 IN COMPANY PETITION NO. 250 OF 1996 WITH COMPANY APPLICATION NO. 77 OF 2008 IN COMPANY PETITION NO. 205 OF 1996 Dated:- 5-3-2008 – K.A. PUJ, J. S.N. Shelat and M.G. Nagarkar for the Applicant. Nitin K. Mehta and D.S. Vasavada for the Respondent. JUDGMENT 1. Since common issue is involved in both these Company Applications they are heard together and are being disposed of by this common judgment and order. 2. Both these Company Applications are filed by State of Gujarat through the Secretary, Industries & Mines Department, Sachivalay, Gandhinagar. 3. Company Application No. 562 of 2007 is in relation to Priyalaxmi Mills, Vadodara a unit of Gujarat State Textile Corporation (in liquidation) and Company Application No. 77 of 2008 is in relation to Monogram Mills, Ahmedabad a unit of Gujarat State Textile Corporation (in liquidat
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es to the State Government to the tune of Rs. 826.79 crores for discharging the liabilities towards all the dues of the Gujarat State Textile Corporation (in liquidation). 4. In Company Application No. 562 of 2007 an affidavit is filed by Shri Rajesh Kantilal Shah – Dy. Secretary to the Government of Gujarat in Industries & Mines Department, Gandhinagar, in support of judge s summons whereas in Company Application No. 77 of 2008 an affidavit is filed by Shri Kanubhai Atmaram Patel – Under Secretary, Government of Gujarat to the Industries & Mines Department, Gandhinagar, in support of judge s summons. 5. The case of the applicant-State Government in both these matters is that the GSTC Ltd. (in liquidation), is a company duly registered and incorporated under the provisions of the Companies Act, 1956, which was incorporated vide Certificate of incorporation No. 1546/68, dated 30-11-1968. This Company was wholly owned by the State Government and the main objectives for which the
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ion or modernization etc. 6. At the relevant time, there were 17 textile mills of GSTC as per the Annual Report & Accounts for the year 1994-95. On account of stringent crisis in the textile industry in the whole of the State of Gujarat and other relevant regions, GSTC could not do well and, therefore, GSTC approached by the Board of Industrial and Financial Reconstruction (BIFR) for revival of and reconstruction of the Company. After hearing all parties concerned, the BIFR found that it was not possible to meet the losses suffered by GSTC within a reasonable time and there was no likelihood of GSTC being revived in future and, therefore, an opinion was forwarded by the BIFR to this Court under section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 for winding up of GSTC. This opinion was registered as Company-Petition No. 205 of 1996 and after hearing the parties, this Court vide its order dated 6-2-1997 had passed an order to wind up the GSTC and the Official
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1973. On 24-4-1975, Textile Undertaking was closed. The Gujarat State Textile Corporation Ltd., was appointed as authorized controller by the Central Government under section 18A of the Industries Development Regulation Act, 1951 by a Notification dated 23-7-1977. The Textile Undertaking was thereafter managed by the Gujarat State Textile Corporation as authorised controller. (ii)With effect from 1-1-1986 under the provisions of the Gujarat Sick Textile Undertaking Nationalization Ordinance, 1986 the Textile Undertaking was nationalized. The rights, title and interest of the owner stood transferred absolutely in the State Government and, thereafter, in GSTC free from any trust, charge line and encumbrances with effect from 1-1-1986 retrospectively. The Gujarat State Textile Undertaking Nationalization Ordinance, 1986 was repealed and substituted by the Gujarat Sick Textile Undertaking Nationalization Act, 1986. (iii)The Textile Undertaking was managed by the GSTC as an owner of the und
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arge its liabilities after 1-1-1986 when the GSTC owned the said undertaking. The statement of affairs of the GSTC in winding up provides break up of liabilities as on 6-2-1997. It is a statement of affairs certified under section 454 of the Companies Act and is filed before this Court by the Directors of Company under winding up on 6-5-1997. The liabilities are for the period between 1-1-1986 and 5-2-1997 when the order for winding up was passed. Secured Creditors : There are no secured creditors having any charge registered with the Registrar of Companies between the period from 1-1-1986 till 6-2-1997. In the statement of affairs secured dues of Gujarat Electricity Board (GEB) are relating to the energy charges and to the extent of security deposit lodged with GEB. The security deposit is against electricity bills and cannot confer any right to the GEB over any asset of the undertaking except appropriation of outstanding dues against such deposit. The total outstanding dues of GEB ar
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Municipal Corporation (Water Tax) 5,11,055 Unpaid Land Revenue 1,15,928 Baroda Municipal Corporation (Gas Octroi) 7,69,184 Sub Total (a) 2,01,94,448 Dues relating to Central Government : Central Division Baroda (Income-tax TDS) 12 Central Excise Authority, Baroda 11,359 Textile Committee Cess 1,29,908 Sub Total (b) 1,41,279 Workers dues including salary deductions : Workers dues 6,15,461 Sub Total (c) 6,15,461 Total (a + b + c) 2,09,51,188 9. The Municipal Commissioner, Vadodara has intimated to the State Government that they will negotiate amount due and payable to the State Government towards the dues of GSTC and this letter is placed on the record of this application. It is further stated that major parties relate to the dues of State Government and dues relating to the Central Government would be settled and paid after due negotiation. 10. The unsecured creditors shown in the statement of affairs are as under:- Particulars Amount Dues relating to State Government : Gujarat Electric
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tween these parties are placed on the record of this application. 12. In view of the aforesaid details, the amount remains due and payable as identified in the Statement of Affairs is as under:- (a) ONGC Rs. 1,67,58,258 (b) Workers dues Rs. 6,15,461 (c) Dues of Maharashtra Cotton Growers Ltd. Rs. 47,94,336 (d) Other creditors Rs. 28,95,210 13. So far as Monogram Mill is concerned, it is located at Rakhial Char Rasta in Ahmedabad City. The Mill was established on various plots of land taken on lease bearing Survey Nos. 245 to 253. Manilal Mulchand obtained all the plots of different survey numbers except land of Survey No. 252 on permanent lease. The land of Survey No. 245 was taken on permanent lease on 25-8-1927 and land of other remaining survey numbers was taken on lease on 14-7-1927. Manilal Chunilal obtained the land of Survey No. 252 on permanent lease from Harmandas Khushaldas and Baldevdas Harmandas on 30-8-1918 who gave this plot to Ben Marsden on lease. Subsequently all the p
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e were entitled to the benefits of the scheme. Accordingly, almost all the employees tendered their voluntary resignations to the management and were paid their terminal benefits and other dues in terms of the VRS Agreement. The total amount spent on payment of terminal benefits to the employees of the Mill under the said VRS Agreement is Rs. 3,075.19 lakhs. The said amount was paid by GSTC out of the funds provided by the State Government. The credit balance of GSTC in the books of Mills as on 6-2-1997 was Rs. 8,922.46 lakhs which represents the total amount advanced to the Mills since its Nationalization by GSTC out of the funds provided by the State Government. 15. It is further stated that the period of management of Mills by its Board of Directors prior to the closure of the Mill in October, 1982 and, thereafter, till Nationalization with effect from 8-11-1985 is pre-nationalization period. The period of management by GSTC since nationalization on 8-11-1985 to its winding up on 6-
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uring the post-nationalization period and remaining outstanding as on 6-2-1997 as well as the liabilities created by the Official Liquidator since 6-2-1997 and remaining outstanding till the date are to be discharged, out of the assets of the undertaking by the Official Liquidator. The category wise break up of liabilities as on 6-2-1997 for post-nationalization period is given in the Statement of Affairs of the GSTC prepared upon its winding up as per statutory requirement under section 454 of the Companies Act, 1956. It was prepared by GSTC and filed before this Court under the affidavit by the then Directors of the GSTC on 6-5-1997. The said statement of affairs contains details of liabilities and assets of all the unit Mills of GSTC individually and consolidated as a whole of GSTC including Monogram Mills. 17. The Chartered Accountant appointed by the State Government had verified the affairs of GSTC under liquidation as on 6-2-1997 and according to the summary of statement and acc
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4,12,086 Sub Total (b) 4,12,086 Workers dues including salary deductions: 2,36,049 Sub Total (c) 2,36,049 Total (a + b + c ) 2,44,96,931 Thus, as stated above, total liability to preferential creditors as per Statement of Affairs drawn on 6-2-1997 from Audited Books of Account is Rs. 2,44, 96,331. Out of total such dues, major portion relates to the dues of the State Government alone. Dues relating to Central Government and dues of workers including on account of deductions from salary aggregate to Rs. 6,48,135 as against dues of Rs. 2,38,48,796 relating to State Government alone. C. Unsecured Creditors – List: E The break up of unsecured creditors listed in List: E of the Statement of Affairs as on 6-2-1997 drawn from the Audited Books of Account of GSTC, is as under:- Dues relating to State Government : Ahmedabad Municipal Corporation – interest 41,72,373 Gujarat Industrial Investment Corporation (GIIC) 76,000 Gujarat Mineral Development Corporation 8,067 Sub Total (a) 42,56,440 Due
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r outsider remaining dues aggregate to Rs. 36,18,285 of which dues of Maharashtra Cotton Growers Federation are under verification, reconciliation and quantification under the instructions of the State Government and upon completion of that exercise, the same will be paid off by the State Government directly. Relevant communication received from GIIC and AMC are placed on the record of this application. 19. It is further stated that out of total post-nationalization dues of Rs. 5,44,61,315 outstanding as on 6-2-1997, dues aggregating to Rs. 2,81,05,236 are related to State Government and dues aggregating to Rs. 2,20,89,659 have been directly settled by State Government. Thus, out of the total liabilities, the aggregate quantum of dues relating to State Government and dues directly discharged by the State Government works out to 92.17 per cent of the total dues. Thus, the major stake in the form of liabilities is of the State Government. 20. In addition to the discharge of dues of post-
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t entire liability of the Company in liquidation and still an ongoing process is initiated by the State Government to discharge the dues of remaining outside creditors. The State Government has undertaken to settle dues relating to State Government directly with respective department and respective institution. On the date of passing of the winding up order by this Court, balance with Bank of Monogram Mills was Rs. 72,557 only. Official Liquidator sold the plant and machineries of the Mills in the year 1999 at a consideration of Rs. 445 lakhs. The Sale Committee constituted for the liquidation proceedings had invited offers for sale of buildings of the Mills and the highest offer of Rs. 400 lakhs is under process of approval by this Court. The said amount which realized together with principal amount of Rs. 445 lakhs already realized by sale of plant and machineries of the Mills in the year 1999 will be more than sufficient to discharge entire liabilities of the Mills stated in the Sta
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or. 22. Mr. Shelat has further submitted that the liabilities relating to the period from the date of nationalization of the undertaking till the winding up of the company falls under the jurisdiction of the Official Liquidator. In respect of the liabilities prior to the date of nationalization vests with the Commissioner of Payments, appointed under the Nationalization Act and Official Liquidator has no obligation with regard to the liabilities of pre-nationalization period. Hence, the State Government is the major creditor of the Mill as well as the sole shareholder as the State Government holds all the equity shares of GSTC. 23. Mr. Shelat has further submitted that the State Government being the sole shareholder and the major creditor of Monogram Mills, Ahmedabad is justified in asking for balance assets remaining to be sold of the undertaking and held by the Official Liquidator for Priyalaxmi Mills and Monogram Mills on behalf of the State Government which is the owner being the s
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the shortfall, if any. 25. Mr. Shelat has further submitted that ever since the winding up order has been passed the Official Liquidator has not taken any steps and thereupon the State Government itself has undertaken the task of discharging the dues, as the State Government was in need of surplus assets of the said Companies. The State Government is, therefore, now major creditor of the Company as well as the sole shareholder, as all the equity shares of GSTC are held by the State Government only. 26. Mr. Shelat has further submitted that the State Government has decided to set up an Information Technology Park in the land admeasuring 64,192 Sq.Mtrs. of Priyalaxmi and Health Institute in the land admeasuring 1,47,034 Sq.Mtrs., of Monogram Mills. It is the public purpose project and would provide better medical facilities to the area nearby. No useful purpose is served by selling the land at the instance of Official Liquidator. It is in public interest that the above surplus assets ad
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ount to the Official Liquidator as claimed. The applicant might have given certain amount to the Company before the date of passing of the winding up order. The dues of the applicant, if any, against the company shall be claimed in liquidation after crystallization of the claim by following the procedure under the Companies (Court) Rules, 1959 and classification thereof for determining priorities of payment in accordance with the provisions of sections 528 to 530 of the Companies Act, 1956. The assets of the Company chosen by the applicant, cannot be transferred and handed over to the applicant on the basis of exclusion of other various classes of the creditors. 28. He has further submitted that it is the duty of the Official Liquidator under direction of this Court to ensure that no creditor or group of creditors or class of creditors march over the legitimate rights of other creditors and classes of creditors, and the assets of the company are liquidated and the proceeds thereof are
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ion of the claims and creditors in terms of sections 529, 529A and 530 of the Companies Act, 1956. He has further submitted that, in case it is found, after inviting claims through newspapers advertisement, that there are no secured creditors or workers ranking pari passu under section 529A of the Companies Act, 1956, the statutory claims against the company as a whole e.g. Claims of Income-tax, Sales Tax, Customs & Excise, and all revenues taxes, cesses and rates dues to the Central or any State Government or a Local Authority shall have priority under section 530 of the Companies Act, 1956 and, therefore, will have to be satisfied in full prior to making any payment to the applicant as an unsecured creditor. It is further submitted that if any occasion for payment to the applicant as contributory arises, it will arise only after satisfying dues of all the creditors in full. Therefore, the applicant neither as an unsecured creditor nor as a contributory can claim assets of the Com
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he Company, on the contrary it is detrimental to the interest of other various classes or creditors. He has, therefore, submitted that the applications are misconceived and deserve to be rejected. 31. Mr. Mehta further submitted that the applicant in the past also moved a similar application being the Company Application No. 348 of 1997 which was disposed of by this Court vide order dated 22-7-1998 granting permission to withdraw the application with liberty to file appropriate application proposing a scheme. The applicant instead of filing an application for scheme of revival of the Company, has moved the present similar application, which deserves to be rejected. 32. The applicant-State of Gujarat has filed affidavit-in-reply to the report of the Official Liquidator. Mr. Shelat in rejoinder submitted that the Company is owned by the State Government and hence it had full financial backing of State Government. Till its winding up order, it was fully capable of discharging its debts. T
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6-2-1997 compiled in four volumes in order to defend the merits of the grounds and contents of the application. He has, however, submitted that this exercise of indepth study of the contents contained in four volumes of Statement of Affairs has already been completed by Official Liquidator way back in the year 1998 with assistance of Chartered Accountant appointed by him. The Chartered Accountant had submitted his observations contained in 60 pages to Official Liquidator along with his letter dated 7-4-1998. The said observations were redirected by Official Liquidator to Ex-Directors of GSTC along with his letter dated 4-6-1998. The observations/remarks/comments of the Chartered Accountant contained in 60 pages were replied by Ex-Director vide his letter dated 17-6-1998. Thereafter, there is no further comment from OL on the contents of Statement of Affairs. It can be made out that OL required almost two months time to simply redirect the comments to Ex-Director while Ex-Director requ
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should be distributed to the creditors in accordance with the priorities laid down therein and residual surplus, if any, should be passed on to owner/shareholder. However, it is nowhere laid down in the Act that all the assets should be first sold out and that too in auction and, thereafter, distribution process should be undertaken. There is no strait jacket formula prescribed under the law for which respondent sought strict compliance. In the instant case, almost entire assets available with OL at present, both in terms of liquid asset and movable and immovable assets are surplus assets. After 11 years of winding up order and handover of sizable amount by way of bank balance to OL in pursuance of winding up order as well as realization of sizable amount by way of sale of part of the assets since winding up, not a single creditor including secured creditors are paid by OL. Since winding up, no payments are made by OL other than payments to workers in pursuance of Court orders, expense
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h regard to present status of liabilities, category of creditors, funds available with OL in the form of bank balance etc. In fact, the vital question raised with regard to bank balance available with OL has been conveniently overlooked and no information has been furnished in that respect. He has submitted that to the best of his information, the OL has rendered account so far from 6-2-1997 to 5-2-2004 only of which last period s accounts i.e., 6-2-2003 to 5-2-2004 were un-audited. According to the said accounts, balance available with OL on 6-2-2004 was Rs. 4,627.70 lakhs. The balance available with OL at present must be much more than that and the said balance alone is many times more than the remaining outsiders dues, i.e., other than own dues of State Government. Hence, the objections and contentions raised by OL are quite contrary to the facts about status of outstanding outsiders dues and full protection to all such dues in the form of available on hand balance with OL in bank a
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Shelat further submitted that the details of outstanding liabilities are given in Statement of Affairs as on 6-2-1997, which are available with OL and lying in his office for the last about 11 years. However, OL has so far not looked at that nor made payment to a single creditor out of that in spite of available funds. On account of failure of OL in discharge of statutory duties, the assets, have remained idle and unutilized for about 11 years. In order to overcome the situation, State Government directly settled the dues of all the secured creditors and commenced the process of settlement of all institutional unsecured creditors. Thus, thereafter, the remaining dues will consist of old unclaimed credit balances and State Government s own dues. He has, therefore, submitted that looking to the facts and circumstances and in view of the factual aspects, the contention of OL to invite the claims is absolutely unwarranted and contrary to the facts of the case. 38. He has further submitted
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f revival or reconstruction for such a company under its name. Further, in case of most of the constituent units, assets other than land have been sold and in the circumstances it is difficult to understand that how a revival scheme can be framed on vacant land in the name of company under liquidation. On the contrary, State Government is functioning exactly with the same spirit of revival and reconstruction for the purpose of generating employment and in the interest of the public at large on different projects under different name and style instead of implementing any such project under the name of GSTC. He has, therefore, submitted that the State Government can be said to be in total conformity with the provisions of the Companies Act, 1956. 40. Mr. Shelat has further submitted with regard to the earlier application filed and withdrawn by the State Government that the ground of objection at that time was absence of any revival and reconstruction scheme. Possession of the assets unde
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tion contractor but will help the State Government to prepare and finalize the plans, drawings, designs and approval of the projects simultaneously with the demolition work and will make possible the implementation of the project immediately upon completion of demolition work. 42. Mr. Shelat has further submitted that the Company Application No. 250 of 2006 was filed by the State Government for taking over possession of the assets of Sarangpur Cotton Mills and Silver Cotton Mills. The said application was decided in favour of the State Government vide order dated 17-7-2006 and the possession of the assets of Mills were handed over to the State Government for public purposes. He has, therefore, submitted that the prayer sought for in the Company Application requires to be granted in the interest of justice by allowing the Company Application. 43. Mr. D. S. Vasavada, learned advocate appearing for the Textile Labour Association has supported this application and submitted that the worker
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ate Government and even if the objections raised by the Official Liquidator in his report, they are not sustainable either on facts or in law. 45. Section 457 of the Act deals with power of Liquidator. Section 457(1)(e) states that the Liquidator in a winding up by the Court shall have power with the sanction of the Court to do all such other things as may be, for winding up the affairs of the Company and distributing its assets. Section 475 of the Act empowers the Court to adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled thereto. It is true that the wordings of section 457(1)(e) as to the distribu-tion of assets amongst the members found are not as explicit as in section 511. Section 511 of the Act deals with distribution of property of the Company voluntarily wound up. However, section 457(1)(e) read with section 475, the result is not different. In the case of a compulsory winding up by Court, the debts and liabilities wi
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powers by the Liquidator under section 457(1) or (2) of the Act. 46. Earlier, the State Government has filed Company Application No. 237 of 2004 and Company Application No. 250 of 2006 for taking over possession of the assets of New Jahangir Vakil Mills, Bhavnagar and Sarangpur Cotton Mills as well as Silver Cotton Mills, Ahmedabad and the said applications were decided in favour of the State Government vide order dated 23-12-2005 and 17-7-2006 respectively and the possession of the immovable assets of the Mills Companies were handed over to the State Government for public purposes. Even possession of immovable assets of New Swadeshi Mills, Ahmedabad and Bhalakia Mills, Ahmedabad was also handed over to the State Government under the order of this Court. The State Government has decided to put the land of these Mills Companies into various public purposes, such as a Jems and Jewellary Park at Bhavnagar, Apparel Park at Ahmedabad, Health Institute and Hospital at Ahmedabad respectively
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