2003 Supreme(SC) 418

2003(3) Supreme 217
SUPREME COURT OF INDIA
(From Kolkata High Court)
K.G. Balakrishnan & P. Venkatarama Reddi, JJ.
State of West Bengal & Ors. -Appellants
versus
Sri Pronab Kr. Sur & Ors. -Respondents
Civil Appeal Nos. 805-806 of 1999
Decided on 4-4-2003
Counsel for the Parties :
For the Appellants : Bhaskar Gupta, Sr. Advocate, Ms. Radha Rangaswamy, Ms. Ranjeeta Rohatgi, Advocates.
For the Respondents : Bijan Kumar Ghosh, Ms. Manjula Gupta, Dhruv Mehta, Mohit Chaudhary, Mrs. Shalini Gupta and S.K. Mehta, Advocates.
For the Respondent : Pronab K. Sur-in-person (NP).

IMPORTANT POINT
The acceptance of the proposal involving the sale of the company s surplus land to CMS Ltd. and the consequential directions issued by the Division Bench of the High Court are not supportable in law.

Headnote:Companies Act, 1956-Section 394 read with Sections 391(1) and 392-Scheme of arrangement sought to be entered into with the creditors and for facilitating revival of the Company-Acceptance of proposal involving the sale of the Company s surplus land to CMS Ltd.-Division Bench of the High Court issuing consequential directions-Whether supportable in law? (No, as High Court out-stepped the limits of its jurisdiction)-Whether directions of DB can be given effect to at all now? (No, in view of subsequent developments that have taken place)-Appeal allowed-Company Judge to deal with Company petition and the applications in accordance with law-Clarification in regard to exemption under Section 20 of ULC Act.

       Held : We now come to the crux of the issue arising in the case: It is evident from the narration of facts that the offer made and the proposals submitted by the 6th Respondent (CMS Ltd.) formed the basis of the order passed by the Division Bench of the High Court. It cannot be gainsaid that to a substantial extent, the said proposals which received the imprimatur of the Court, largely influenced the Division Bench in holding that the Company was entitled to get exemption under Section 20 of the ULC Act. True, certain reasons given by the High Court in concluding that the refusal of exemption was illegal can be dissociated from the question of acceptance of the proposals submitted by the Company backed up by the offer of CMS Ltd.; but, the impact of the offer made by CMS Ltd. on the decision taken in regard to exemption under ULC Act is indelible. In fact, the holding of the Division Bench that the excess land ought to have been exempted was in the context of effectuating the said proposal accepted by the Court. This, apparently, is the reason for passing a combined order. Therefore, we deem it appropriate to consider, in the first instance, whether the acceptance of the proposal involving the sale of the Company s surplus land to CMS Ltd. and the consequential directions issued by the High Court are supportable in law and, at any rate, whether the directions of the High Court can be given effect to at all at this point of time. The aforesaid question calls for a discussion on the jurisdiction of the Court to pass an order approving the proposed sale as well as the propriety of such order. Coming to the first aspect, it is difficult to comprehend, under what jurisdiction the Court had passed the order and issued the directions referred to supra. The High Court did not refer to any provision of the Companies Act under which the order in question was passed nor did the 2nd Respondent mention any provision under which the application was filed. The only provision which could possibly be invoked to pass an order of this nature is Section 394 read with Sections 391 (1) and 392 of the Companies Act. But, there is a definite procedure prescribed for sanctioning a scheme or arrangement sought to be entered into with the creditors and for facilitating the revival of the Company. Various steps required to be taken by the Court are enumerated in Sections 391 to 393. Section 394A obligates the Court to give notice of every application under Section 391 or 394 to the Central Government and the Court shall take into consideration the representation, if any, made by the Government before passing the order. Admittedly, this was not done. None of the creditors except the secured creditor, namely, the United Bank of India and Eastern Coal Agency, which filed the winding up petition, were involved in the so called arrangement or scheme. It does not appear that the latest financial position or the report on the accounts of the Company was placed before the Court as required by the proviso to Section 391(2). Though the Court was exercising special jurisdiction under the Companies Act, the relevant provisions were completely disregarded and the Court was only guided by its own notions of justice. The pre-requisites laid down under the Companies Act for passing the order under Section 391 or 394 cannot be treated as empty formalities which can be thrown to winds at the whim of the Judge. The most objectionable part of the impugned order is to consider one or two offers placed before the Court by the Company without giving due publicity. If the peculiar circumstances of the case required that the normal procedure of calling for bids through advertisement or other means of publicity was to be dispensed with, the Court should have at least recorded reasons for the same. But, nothing of that sort was done. The Division Bench should have acted with the awareness that there could be no arbitrary selection of the prospective purchaser, even assuming that an order for sale could be lawfully made. Above all, if the purpose was to rehabilitate or revive the Company, definite proposals for revival should have been insisted upon and the High Court should have passed appropriate orders to ensure that the industry was put back on its wheels and started the production within a time frame, but, the only direction given in the order was to pay the amount of one crore or so to the 2nd Respondent-Company ostensibly for the purpose of restarting the industry. How to ensure proper utilization of that money - nothing is mentioned in the order. No provision for monitoring the revival has been made. At the same time all the pending proceedings were terminated. There can be no doubt that the Division Bench out-stepped the limits of its jurisdiction and passed orders of extra-ordinary nature. The other important reason why the impugned order of the Division Bench cannot be sustained is the subsequent developments that have taken place. It appears that CMS Ltd. (6th Respondent) is no longer interested in the deal. They have not entered appearance before this Court though notice was served. The learned counsel for the 2nd Respondent-Company is not in a position to say that CMS Ltd. is still interested to purchase the land. Secondly, the learned counsel for United Bank of India has made it clear that the bank is no longer agreeable to abide by the terms agreed to earlier under which the bank had to receive Rs. 1.80 crore in full settlement of their claim. The learned counsel appearing for the Bank has contended with justification that it would be imprudent on the part of the Bank to now accept the sum which was offered about 7 years back. The accumulated interest since then would be almost double the amount offered to the Bank in the year 1996. The learned counsel further made it clear that the Bank would like to remain outside the winding up proceedings and pursue the suit filed as long as back in 1992. In view of these two developments, we are of the view that the substratum and underlying basis of the order under appeal has disappeared and it is no longer possible to give effect to the directions given by the Division Bench in the Company Appeal. For all these reasons, the order passed in the Company Appeal is liable to be set aside. The Company Petition No. 90 of 1992 will be restored to the file of High Court and the learned Company Judge will be free to deal with the Petition and the applications, if any, filed therein in accordance with law. (Paras 12 to 15)

       Held further : As already observed, the order of the High Court in regard to grant of exemption under Section 20 of the U.L.C. Act being in a way inter-related to the approval of the sale of vacant land, should also fall along with the order passed in purported exercise of jurisdiction under the Companies Act. That apart, there is an additional reason why we are inclined to set aside the order of the High Court on this aspect. The High Court did not consider the relevance and effect of the guidelines issued by the State Government in regard to the exercise of power under Section 20 vis-a-vis excess land held by sick industrial units. The High Court was not justified in describing them as unknown guidelines , because the orders containing the guidelines were very much on the record and they were adverted to in the pleadings etc. We are not expressing any view on the question whether the application under Section 20 of ULC Act should be dealt with solely from the point of view of the guidelines. We are also refraining from expressing any view on the question of validity of those guidelines in the light of Section 20. These are all questions to be decided by the High Court to the extent they are considered necessary and relevant for adjudication of the writ petition. Whether or not it is a fit case for grant of exemption at least in respect of part of the land so as to facilitate the discharge of workers salaries and statutory dues is also a matter which the High Court may consider, if necessary. It is, however, made clear that the pendency of proceedings under the Companies Act shall not be construed to be a bar to give effect to the provisions of ULC Act in view of the over-riding effect conferred by Section 42 of that Act. Accordingly, we set aside the impugned order of the High Court in regard to its finding and declaration on the point of exemption under Section 20 of ULC Act. Writ Petition 383 of 1997 shall be restored to the file of the High Court and the same be dealt with by a Division Bench expeditiously. (Paras 16 and 17)

       Held finally : Both the appeals are allowed accordingly. We make no order as to costs. (Para 18)