State of Gujarat Versus Official Liquidator of GSTC Ltd.
Companies Law
2008 (3) TMI 483 – HIGH COURT OF GUJARAT – [2008] 84 SCL 457 (GUJ.)
HIGH COURT OF GUJARAT – HC
Dated:- 5-3-2008
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
Corporate Laws
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 Mon
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inst the amount already paid by the Government which the Official Liquidator owes 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 wh
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any one or more of the purpose of working finance, rehabilitation, expansion 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 da
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f Rs. 88.25 lakhs with effect from 1-5-1973 by sale deed dated 26-5-1973. 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)
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, in order to priority.
(vii)The Official Liquidator is required to discharge 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 o
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city Duty GEB
1,49,60,744
Unpaid Turnover Tax
496
Sales Tax Recovered to be paid
4,394
Baroda Municipal Corporation (Water Tax)
5,11,055
Unpaid Land Revenue
1,15,928
Baroda Municipal Corporation (Gas Octroi)
7,69,184
Sub Total (a)
2,01,94,448
Dues relating to Central Government :
Central Division Baroda (Income-tax TDS)
12
Central Excise Authority, Baroda
11,359
Textile Committee Cess
1,29,908
Sub Total (b)
1,41,279
Workers dues including salary deductions :
Workers dues
6,15,461
Sub Total (c)
6,15,461
Total (a + b + c)
2,09,51,188
9. The Municipal Commissioner, Vadodara has intimated to the State Government that they will negotiate amount due and payable to the State Government towards the dues of GSTC and this letter is placed on the record of this application. It is further stated that major parties relate to the dues of State Government and dues relating to the Central Government would be settled and paid after due negotiation.
10. The
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CI and BRPL have been settled and paid vide G.R. dated 16-10-2006 & 21-12-2006 respectively. The settlement with ONGC and Maharashtra Cotton Growers Federation are underway. Relevant correspondence entered into between 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 tak
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Mills.
14. Before winding up of GSTC under an order of this Court, a Voluntary Retirement Scheme (VRS) was announced by GSTC under an agreement executed with recognised union. All the employees who were on the roll at that time were entitled to the benefits of the scheme. Accordingly, almost all the employees tendered their voluntary resignations to the management and were paid their terminal benefits and other dues in terms of the VRS Agreement. The total amount spent on payment of terminal benefits to the employees of the Mill under the said VRS Agreement is Rs. 3,075.19 lakhs. The said amount was paid by GSTC out of the funds provided by the State Government. The credit balance of GSTC in the books of Mills as on 6-2-1997 was Rs. 8,922.46 lakhs which represents the total amount advanced to the Mills since its Nationalization by 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
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f the said compensation by Commissioner of Payments appointed under the Gujarat Closed Textile Undertakings (Nationalization Act, 1986 – Gujarat Act 10 of 1986) Act in order of the priorities laid down in the Act. The liabilities created during 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 a
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t
Dues relating to State Government :
Sales – tax
35,25,775
Deferred Electricity Duty GEB
1,73,64,523
Ahmedabad Muni. Corp. (Tax)
27,95,190
Others
1,63,308
Sub Total (a)
2,38,48,796
Dues relating to Central Government :
Textile Committee Cess
4,12,086
Sub Total (b)
4,12,086
Workers dues including salary deductions:
2,36,049
Sub Total (c)
2,36,049
Total (a + b + c )
2,44,96,931
Thus, as stated above, total liability 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 6-2-199
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d. (former AEC), have also been paid by the State Government at an agreed amount. Government orders and undertakings are placed on record. Thus, out of total dues of Rs. 2,99,64,384 major portion has been discharged by State Government and out of remaining dues, Rs. 42,56,440 relate to undertak-ings/authorities owned/controlled by State Government. Other 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 dir
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since nationalization to winding up and thereafter as under :-
Name of Bank/Institution
Amount
Bank of Baroda
103.81
Dena Bank
75.75
IDBI
52.92
Total
232.48
21. Based on the above facts, Mr. S.N. Shelat, learned Senior Counsel appearing with Mr. M. G. Nagarkar, for the applicant-State of Gujarat has submitted that the State Government has discharged almost 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
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be surrendered by the Official Liquidator to State Government as a sole shareholder of GSTC. On the other hand, as per available information, since winding up order of GSTC and handing over the affairs and assets of the undertaking to the Official Liquidator, none of the creditors as mentioned in the Statement of Affairs has been discharged by the Official Liquidator.
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 G
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as a creditor and as a sole contributory of the Company. He has further submitted that the Official Liquidator has sufficient funds in the account of GSTC which would be sufficient to discharge the liabilities of other remaining unsecured creditors, if any, and if there is any deficit in repayment of dues of the aforesaid creditors, the State Government shall make good 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
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ng the procedure of sale of assets by public auction or otherwise in accordance with the Companies (Court) Rules, 1959. The assets, in any case, cannot be transferred free from all encumbrances without following the due process known to law for satisfying the encumbrances, liabilities and charges etc. He has further submitted that the State Government has not given any amount to the Official Liquidator as claimed. The applicant might have given certain amount to the Company before the date of passing of the winding up order. The dues of the applicant, if any, against the company shall be claimed in liquidation after crystallization of the claim by following the procedure under the Companies (Court) Rules, 1959 and classification thereof for determining priorities of payment in accordance with the provisions of sections 528 to 530 of the Companies Act, 1956. The assets of the Company chosen by the applicant, cannot be transferred and handed over to the applicant on the basis of exclusio
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itted that for the purpose of making proper submissions with respect to the submissions of the applicant claiming to be the only creditor of the company, it is necessary to ascertain claims against the company by inviting claims through advertisement in newspapers and adjudication thereof in accordance with the provisions of the Companies (Court) Rules, 1959 and classification 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
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ng or recalling the winding up order and after discharging the Official Liquidator after payment of his expenses and Central Government fees. He has further submitted that only the chosen assets cannot be claimed by the applicant since it is neither permissible under any specific provision of the Companies Act, 1956 nor it is in the interest of beneficial winding up of the Company, on the contrary it is detrimental to the interest of other various classes or creditors. He has, therefore, submitted that the applications are misconceived and deserve to be rejected.
31. Mr. Mehta further submitted that the applicant in the past also moved a similar application being the Company Application No. 348 of 1997 which was disposed of by this Court vide order dated 22-7-1998 granting permission to withdraw the application with liberty to file appropriate application proposing a scheme. The applicant instead of filing an application for scheme of revival of the Company, has moved the present simi
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onally a non-viable company but not financially insolvent. Hence, at the point of winding up order and as on today even, the aggregate value of assets of GSTC is many times more than the outstanding liabilities.
33. Mr. Shelat has further submitted that the Official Liquidator has sought ten weeks time for proper submission after careful study of Statement of Affairs as on 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 da
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hen.
34. Mr. Shelat further submitted that the Official Liquidator's contention that assets cannot be handed over on pick and choose basis but should be sold under auction has no substance or merits. The broad principles are laid down in the Companies Act, 1956 with regard to process of liquidation. The basic principle laid down in the Act is that the realization of assets should be distributed to the creditors in accordance with the priorities laid down therein and residual surplus, if any, 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
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tory i.e., State Government and hence it is prerogative of the owner to claim possession on pick and choose basis.
35. Mr. Shelat further submitted that the OL has raised repeatedly same contention and objection of pick and choose purely on theoretical grounds such as crystallization of liabilities and priorities laid down in the Act without looking at the factual aspect with 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
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contributory opted to discharge the liabilities directly and claim residual assets on pick and choose basis and in phased manner. Considering the facts of the case, status of liabilities, discharge of liabilities directly by State Government, available balance with OL etc., it is the right of the State Government to claim possession of assets on pick and choose basis.
37. Mr. 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 un
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pal Corporation, GIIC, GMDC etc. have given consent to the settlement of dues as directed by State Government. Thus, on factual aspects, the objections and contentions of OL have no merits nor are substantiated.
39. Mr. Shelat has further submitted that the Company was ordered to be wound up on the ground of operational non-viability only and as such there cannot be any scheme of 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 h
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of GIDC working in Textile Cell of GIDC and not by staff of OL office. Hence, in case of grant of possession of assets to State Government, still the work of demolition will be supervised by the same staff of GIDC from Textile Cell of GIDC. The grant of possession of asset sought under the present application will neither in way result into obstruction to demolition work nor demolition 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
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ompany 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.
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 th
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but it is also the only shareholder/contributory. The Court is, therefore, of the view that there is no inhibition on the jurisdiction of this Court to entertain, decide and grant relief in these two applications preferred by the State Government being a secured creditor and sole contributory. These applications are certainly with respect to exercise or proposed exercise of any of the 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 i
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of Priyalaxmi Mill, Vadodara, the State Government has decided to develop the Information Technology Park whereas on the land of Monogram Mill, Ahmedabad, the State Government has decided to establish a health centre. So far as surplus fund available with the Official Liquidator in GSTC Account is concerned, the Official Liquidator was earlier directed by this Court to return the amount of the funds available with him till this date. As per the say of the State Government the Official Liquidator is having funds of more than Rs. 60 crores as on today in GSTC account. A part of the said funds may be retained by him for discharging the liabilities or to meet with any exigency that may arise in future. The balance amount shall have to be handed over to the State Government and the appropriate order in this regard will be passed after submission of accounts before the Court under separate report.
48. With this observations and directions, both these applications are accordingly disposed of
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