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TMI Blog2010 (12) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/2003 filed by New Cawnpore Flour Mills Private Limited was admitted and citations were directed to be published. Looking into the allegations and particularly the conduct of the management of BIPL, the Official Liquidator attached to this Court was appointed as the provisional liquidator to take over assets, properties and books of account. It was observed in this order that it was not necessary to pass separate orders in each winding up petition and the order would operate in favour of creditors as if it has been made on a joint petition of the creditors. 3. In the meanwhile, BIPL purportedly approached NRI Lead Bank (which is a company not a Lead Bank) seeking financial assistance. It is not clear what exactly happened thereafter but the purported disputes between BIPL and NRI Lead Bank were referred to Arbitral Justice of ADR Arbitration, stated to be a body recognized by the Government of India in terms of section 21 of the Arbitration and Conciliation Act, 1996. The purported reference was in terms of an alleged arbitration agreement. The arbitration proceedings were closed as the Tribunal opined that there was no genuine arbitration agreement. However, new set of arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. 10. On 19-4-2004, the proceedings pending before the civil/execution court were directed to be listed before the Company Court in view of the winding up petition CP No. 204/2003. 11. Now coming back to the company petition, SICOM filed CA No. 414/2004 with the prayer that the order dated 6-4-2004 appointing provisional liquidator and asking him to take over assets, properties and books of account of BIPL should be recalled. By order dated 16-4-2004, an interim direction was passed that possession of SICOM in the above noted factory would not be disturbed till the next date. 12. Another application CA No. 729/2004 was filed in CP No. 204/2004 by the management of BIPL. This application was for direction to SICOM not to sell the property and for maintaining status quo in respect of the property. This application was disposed of vide order dated 17-7-2004. The application was dismissed. In this order it was noticed that in the civil/execution proceedings, bids had been received from three parties, including CBL. In the order dated 17-7-2004, it is recorded that the bid of Rs. 12.5 crores given by the CBL in the execution/civil proceedings was the highest and the same was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact situation obtaining herein, be said to have adopted a fair procedure. (7)Whether in any event the High Court could have ignored the legal requirements as regards the conduct of sale of the assets of the appellant only on the basis of: (1) wrongful conduct on the part of the appellant in obtaining an award from the Conciliation Tribunal; and (2) its failure to bring a better offer from another bidder." 15. The finding of the Supreme Court is that SICOM though secured creditor had submitted itself to the jurisdiction of the Company Court and, therefore, the jurisdiction, which was exercised by the Company Court was under the provisions of the Act and not section 29 of the State Financial Corporation Act, 1951. The Supreme Court has recorded that the Official Liquidator had brought to the notice of the Company Court claims of other creditors including workmen, who are entitled to pari passu payment under sections 529A and 530 of the Act. It was noticed that the Official Liquidator had stated that 373 claims had been filed and the total amount demanded was about Rs. 100 crores. There were also claims of Provident Fund and statutory dues, which have to be given priority. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court to see that otherwise just dues of SICOM be realised. Conduct of a party plays an important role in the matter of grant of a relief. However, only because the conduct of a party was not fair, the same, by itself, cannot be a ground to adopt a procedure which is unjust or unfair, particularly, when by reason thereof, not only the Company itself but also other creditors are seriously prejudiced. We fail to see any reason as to why the hearing of the case was to be preponed. Why even a day's time could not have been granted when a prayer for adjournment was made. The jurisdiction of the Company Court is vast and wide. It can mould its reliefs. It may exercise one jurisdiction or the other. It may grant a variety of reliefs to the parties before it. The parties before the Company Judge are not only the company or the creditors who had initiated the proceedings but also others who have something to do therewith. Even in a given case a larger public interest may have to be kept in mind. The court may direct winding up. It may also prepare a scheme for its restructuring. 77. We, therefore, are of the opinion that the Company Judge was not correct in its view and passed the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisional liquidator, appoint another person to supervise the works and functioning of Ceylon Biscuits Pvt. Ltd. as a Receiver of the court. As Ceylon Biscuits Pvt. Ltd. is being appointed as a Receiver, it goes without saying that it shall act strictly under the supervision of the court and abide by the orders which may be passed by it from time to time." 16. This Court is primarily concerned with the implementation of the directions given by the Supreme Court in paragraphs 77 to 81 quoted above. 17. CBL took possession of BIPL factory of the property on 3rd March, 2005 from SICOM. Sale certificate dated 29-10-2007 was issued pursuant to an order dated 6-7-2007 passed by the Company Court. CBL incorporated a subsidiary, Ceylon Biscuits India Private Limited (CBIPL) on 5-4-2005 for the purpose of manufacturing and using the property. CBL also provided working capital to CBIPL after its incorporation. After judgment of the Supreme Court, CBIPL stopped production on 15-9-2008. It is stated that this production was stopped due to paucity and non-availability of funds. CBL filed an affidavit in this Court on 8-11-2008 stating that CBIPL had stopped production with effect from 15- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. I am, however, not inclined to accept prayers 2 to 4 made in the application CA No. 900/2008 despite the report of Vaish and Associates, Chartered Accountants. Substantial expenditure has been incurred by CBL/CBIPL when they were operating and running the factory. Obviously business losses and profits belong to either CBL or CBIPL, they cannot be passed on to the Court. Court was not running the factory and doing business. CBL or CBIPL was not an agent of the Court. Profits and losses are inherent in any business and it is not the obligation of the Court to reimburse the losses suffered by them while they were carrying on business. In case the contention of CBL or CBIPL is to be accepted, then if profits were earned, CBL/CBIL was liable to account for the same. Obviously such a contention cannot be accepted and, therefore, conversely also the plea and claim of CBL or CBIPL has to be rejected. 21. There are two contentious issues. First is the issue with regard to lines 5 and 6 along with some other equipments which were dismantled and taken away to CBL factory in Sri Lanka. This was done with the permission of the High Court which order was confirmed by the Supreme Court. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer of the machinery, viz., New Era Machines Private Limited has stated that the same machinery with additional features and higher capacity would cost Rs. 3.4 crores. It is the contention of management of BIPL that this quote of Rs. 3.4 crores is for only one line and does not include additional features. This is disputed by the counsel for the applicant CBL/CBIPL. Fortunately, I need not dwell further into this aspect of valuation as CBL/CBIPL has agreed and even the management of BIPL has agreed to the following: (i)The entire plant and equipment, including lines 5 and 6, which were dismantled from the property will be brought back to the property and re-assembled and made operational by CBL at their cost and expense. (ii)After re-assembling, an inspection will be carried out, by a court appointed expert in the presence of representatives of the management of BIPL. Management of BIPL is insisting that New Era Machines Private Limited should carry out the said inspection, especially inspection of the oven. The applicant-CBL has some reservations. The expert, who has to carry out inspection, is for the time being left open. However, the purpose and objective of the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be seen that Rule 93 of Order 21 of the Code gives a discretion to the court setting aside a sale, either to award interest or not to award interest. Considered in the context of that discretion, it is clear from the judgment rendered by this Court that this Court refused to direct the payment of interest to the applicant even while directing the refund of the purchase price paid by the applicant to the Official Liquidator. In such a situation it is not possible to accede to the prayer of the applicant to order the payment of interest on the purchase price paid by it, based on the principle embodied in Order 21 Rule 93 of the Code on this application for a clarification of the judgment. In the circumstances of the present applications, we have to proceed on the basis that this Court has exercised its discretion not to award interest on the purchase price in the light of the directions issued by it in that behalf. 11. Learned counsel for the applicant relied on the decision in Motors & Investment Ltd. v. New Bank of India and submitted that in that case the Court ordered payment of interest to the purchaser on the sale being set aside. On an examination of para 6 of the said d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession for 10 years. 12. Even on the principle of restitution, the claim of the applicant may not succeed. This is not a case where the applicant was deprived of both his money and the property purchased by him. There was, therefore, no failure of consideration. By the subsequent order of court, the sale was set aside; but during the interregnum, the applicant had the benefit of the assets he had purchased. The other contracting party, the Company in liquidation, was deprived of the use of its assets. The creditors who held the properties as security were deprived of their right to deal with the security or to enjoy the benefits of the security during the interregnum. In fact, the securities available to the creditors were utilised by the auction-purchaser, the applicant. In that situation, the applicant might have the obligation to account for the profits. Certainly, while rendering the main judgment, this Court was conscious of all these aspects while ordering refund only of the purchase price deposited without providing for payment of interest to the purchaser but at the same time leaving it open to the purchaser to work out its claim for the expenses incurred by it before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution and the said doctrine has been applied to a variety of claims. This is noted in paragraph 13 of the judgment of the Supreme Court in Allahabad Bank's case (supra). 29. In Halsbury's Law of England (4th edition vol. 40(1) at pages 8 in paragraph 10), it has been observed that generally there are 4 stages to a restitutionary claim; (i) The recipient/defendant must have been enriched (ii) Enrichment must have been at the expense of the claimant (iii) Enrichment must not have been "unjust" (iv) Consideration must be given to defenses applicable, if any. Sometimes, a 5th stage is added, namely, remedy available to the claimants. 30. For a restitutionary claim, normally the defendant should have been enriched as a result of something, which the claimant has done for or given to the defendant. Absence of enrichment is fatal to the existence of restitutionary claim. Yes, there can be cases where there is loss to the claimant but no corresponding gain to the defendant. In such cases, restitution is used to denote the restitution of the claimant to the previous position by making good the loss which he has suffered. 31. Unjust enrichment can be positive i.e., when a person receives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or other proceeding or is set aside or modified in any suit instituted for the purpose, the Court which passed the decree or order] shall, on the application of any party entitled to any benefit by way of restitution or otherwise, cause such restitution to be made as will, so far as may be, place the parties in the position which they would have occupied but for such decree [or order] or [such part thereof as has been varied, reversed, set aside or modified]; and, for this purpose, the Court may make any orders, including orders for the refund of costs and for the payment of interest, damages, compensation and mesne profits, which are properly [consequential on such variation, reversal, setting aside or modification of the decree or order]. [Explanation.-For the purposes of sub-section (1), the expression "Court which passed the decree or order" shall be deemed to include,- (a )where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance; (b )where the decree or order has been set aside by a separate suit, the Court of first instance which passed such decree or order; (c )where the Court of first instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efunded money without interest. Even if possession is given, optimum and full use of the property is invariably denied and/or not possible. 36. It is also not possible to accept the contention of the management of the BIPL that in the case of Allahabad Bank (supra) it has been held by the Supreme Court that whenever possession of a property is given to the auction purchaser, no interest is payable. In the case of Allahabad Bank (supra), the Supreme Court has not laid down any such ratio. The facts of the Allahabad Bank's case (supra) leading to the decision dated 7-10-2004 may be noticed. In the said case by judgment in appeal decided on 20-4-1999, the auction purchaser was directed to be refunded the bid amount of Rs. 2 crores as the auction sale was set aside. There was no direction to pay interest. The Official Liquidator refused to pay any interest. The applicant-auction purchaser thereupon filed an application before the Supreme Court seeking clarification of the judgment dated 20-4-1999 and for direction that the applicant was entitled to interest accrued on the purchase price of Rs. 2 crores. The application was opposed by the creditors. Noticing the facts in paragraph 12 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter dealing with recovery of benefits conferred under judgments or orders subsequently reversed or set aside. In the said chapter reference is made to decision in the case of Manning [1609] 8 Co.Rep 94b, which reads as under :- "If the sale of the terms should be avoided, the vendee would lose his term, and his money, too, and thereupon great inconvenience would follow, that none would buy of the sheriff goods or chattels in such cases, and so execution of judgments...would not be done." 37. This reasoning was followed in Mani Lal v. Ganga Prasad AIR 1951 All. 832 and the following observation was made :- "5. In Bacon's Abridgement, it was laid down, citing still older authorities, that: "If a man recovers damages and lath executed by fieri facias and upon the fieri facias the sheriff sells to a stranger a term for years, and after the judgment is reversed the party shall be restored only to the money for which the term was sold, and not to the term itself, because the sheriff had sold it by the command in the writ of fieri facias." This principle was upheld in England in numerous cases vide Mathew Manning's case [1609] 8 Co. Rep. 94b, Bennet v. Hamill [1806] 2 Sch. & Lef. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration. It may be relevant to note here that in paragraph 79 of the judgment, the Supreme Court has stated that the Company Judge may consider the question for grant of some preference to CBL and had allowed CBL to continue to function as a Receiver. If CBL was guilty of fraud or was a purchaser for inadequate sale consideration, these observations and grant concession to CBL/CBIPL would not arise. 41. Learned counsel for the CBL has relied upon a hand written note/document and emphasized that CBL was negotiating with the management of BIPL before they had participated in the auction and given their bid. My attention was drawn to the fact that CBL had filed an application before the civil/execution court on or about 15-3-2004. It was stated that this note/document was filed before the Supreme Court and this note/document shows that consideration/bid offered by CBL was inadequate and was much less than CBL's own valuation. The Supreme Court has not referred to this note/document. It is noticed that several cuttings and remarks on the note/document, have not been indicated in the true typed version. It is noticed that what was auctioned, was the tangible property and not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meant for distribution amongst the workmen. Rs. 8 crores once appropriated by the SICOM, IDBI and IFCI reduced the liability of BIPL to this extent towards interest. BIPL or management of BIPL, therefore, gets advantage of the said appropriation from the date the amount was appropriated till repayment is made. The rate of interest charged by the financial institutions, it is stated is about 18 per cent. BIPL or management of BIPL, gets benefit/advantage of this deposit/appropriation by the financial institutions the extent of Rs. 8 crores. At the same time CBL/CBIPL has used and utilized the plant and equipment in the factory and has used the property during the period from 3-3-2005 till 15-9-2008. CBL/CBPIL has used the plant and equipment, which has depreciated and come down in value. ITCOT has stated that plant/equipment at Sri Lanka is old but in good condition. They must account for and pay and this aspect has to be kept in mind while deciding the question of rate of interest. These factors cannot be ignored. Rate of rent/mesne profits with reference/in ratio to capital value of a property in India is low. Rate of annual return in terms of mesne profit/rent is normally less t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st now awarded to CBL will also enure to the benefit of BIPL/Management of BIPL. Thus the effective rate of return towards mesne profit/depreciation for BIPL/Management of BIPL will be about 9 per cent on Rs. 12.50 crores/bid value. It is made clear that CBL will not be entitled to any further charges/expenses on account of maintenance, keeping up etc. or for re-starting the factory and making it operational. The interest figure will include all expenses payable to them for upkeep, maintenance, watch and ward etc. 45. Rs. 8.5 crores will be refunded by the financial institutions on or before 10-1-2011 to CBL. The CBL will re-install the Lines 5 and 6 and other equipments, which were taken away to Sri Lanka, within a period of four months. The interest amount and Rs. 4 crores will be paid to CBL after Lines 5 and 6 and other equipments are re-installed and the expert appointed by the Court has certified that the Lines 5 and 6 and other equipments, are in operational condition/state. Till then the CBL will continue to act as a Receiver and maintain the plant and machinery and keep them in operational state but not use them. 46. It is clarified that CBL will continue to be a Receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. This is an excuse, which cannot be accepted. Management of the BIPL has not furnished name or details of any proposal given to them by a third party. Management of BIPL themselves are not in a position to propound a scheme for payment of the dues and for re-starting the business. It is noticed that in 2004, the same management as per their own case, had got in touch with CBL when the factory was lying closed and sealed. The fact that CBL was not permitted inspection of the factory, did not debar or prevent management of BIPL from negotiating with the CBL. 49. The Official Liquidator was appointed as a provisional liquidator on 6-4-2004. At this stage, we have to keep in mind interest of the creditors and workmen. Interest of the promoters or members/ management of the company is relevant but not as important as interest of creditors and workmen. We have to also keep in mind the fact that 7 years have lapsed and unless immediate steps are taken, the value of the plant and equipments will depreciate. Supreme Court in the judgment dated 16-5-2008 has quoted the following passage from Farar's Company Law :- "74. .... We may notice the observations made by the learned author: 'As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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