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Bureau of Indian Standards v/s U.P. Cooperative Spinning Mills Federation Ltd. & Another

    Consumer Case No. 451 of 2002
    Decided On, 01 February 2016
    At, National Consumer Disputes Redressal Commission NCDRC
    By, MEMBER
    For the Complainant: Jos Chiramel, with Apoorva Srivastava, Sandeep Chatterjee, Advocates. For the Opposite Parties: Nemo.

Judgment Text

J.M. Malik, Presiding Member- We promise according to our hopes but perform according to our selfishness and our fears.

2. U.P. Cooperative Spinning Mills Federation Limited -OP-1 in its information memorandum and other connected publicity materials -Annexure P-2 Colly, held out that the Debenture bonds would carry interest @ 16% per annum payable annually on non-cumulative basis, redeemable at the end of 4, 4-1/2 and 5 year at 33%, 33% and 34% respectively. Bureau of Indian Standards, a body corporate constituted under the Bureau of Indian Standards Act 1986 was informed that the investment was secured by first charge over its unencumbered assets at book value, that escrow account would be maintained to ensure structured payment mechanism for timely payment of interest and principal dues to the bond holders and that a sinking fund would be created to meet the redemption proceeds.

3. The Opposite Party No.1 also gave a very glossy picture of its financial status by stating that it had earned profit of Rs. 10.00 crores in 1996-1997 and Rs. 8.25 crores in 1997-98, and it was professionally run with 95% of the shares held by State of U.P. It was assured that bonds were secured by an exclusive charge, with an asset cover of 1.5 times the issue size, with no other charge. The complainant in the circumstances applied for 400 debentures of the face value of Rs. 5,000/- each, thus aggregating to Rs. 2,00,00,000.00 (Rupees two crores), which amount was deposited on 17 December 1998 drawn on Syndicate Bank, the copy of acknowledge of the application and payment is marked as Annexure-P-4. The debentures were issued on 30.04.1999, vide Annexure P-5 and interest upto 30.04.2000 was received by the complainant from OP-1 on 26.07.2000 at the stipulated rate of 16% per annum.

4. It is alleged that despite reminders, the further interest was not paid. On 26.05.2001, the complainant received a letter, the copy of which has been annexed on record as Annexure P-7 from Shri Akhand Pratap Singh, Industrial Development Commissioner & Principal Secretary, Government of Uttar Pradesh, stating therein that the OP-1 had in the year 1998 raised Rs. 76.00 crores by way of private placement of Bonds and that part of it was secured by Government guarantee. The letter was sent by the OP-2. In the said letter it attempted to paint a picture of OP-1, i.e. rather dismal. It has portrayed the financial status of OP-I and contended that OP-2 will not be able to refund the money, as many as 6 out of 11 units of OP-1 were closed. It was further explained that enquiries were instituted against OP-1 and its officials for financial irregularities and mis-appropriation of funds. It was also contended that neither OP-1 nor OP-2 are in a position to give further financial assistance to OP-1. It is further contended that needful would be done after enquiry is completed and the honouring of commitment would be discussed at that time.

5. The complainant sent reminders dated 08.06.2001 and 10.07.2001, annexed as Annexures P-8 & P-9, followed by notice under Section 80 CPC to the OPs dated 04.10.2001 calling upon them to pay interest amounting to Rs. 32.00 lacs from the period from 01.05.2000 to 30.04.2001 and to issue the Debenture Bonds. In response to the said notice, the OP-I sent reply stating therein that the interest would be paid as and when the funds will be made available by OP-2 but refused to issue debenture bonds certificate. However, it did not give any reason for the same. The complainant thereafter, sent another notice dated 13.11.2001 and received the reply dated 19.11.2001, annexed as annexures -P-12 and P-13, wherein it was assured that on receipt of funds, the principal amount of the debentures and interest would be paid. Another legal notice was sent on 11.02.2002, annexed as annexure-P-14 to the same effect. Reminder dated 20.06.2002 annexed as Annexure-P-15 was sent but to no result.

6. Ultimately, the present complaint was filed on 10.12.2002 with the following prayers:-

"(a) to direct the Respondents forthwith to refund to the Complainant the sum of Rs. 2.00 crores (Rupees two crores only) invested by the Complainant with Respondent No.1;

(b) to direct the Respondents to pay interest on the sum of Rs. 2.00 crores as aforesaid @ 16% per annum w.e.f. 01.05.2000 till realisation to the Complainant;

(c) to award cost of the proceedings in favour of the Complainant and against the Respondents; and

(d) to pass such other order or direction as deemed fit and proper in the facts and circumstances of the present case".

7. The Opposite Party No. 1 has set up the following defenses. The Statement given by the complainant is not absolutely correct. The net profit for 11 member mills of Federation for the year 1996-97 and 1997-98 was after the adjustment of interest amount, Rs. 27.00 crores and Rs. 27.52 crores respectively, which was waived by Financial Institutions under one time settlement arrangement. Again majority of share of Fed/mills were held by State Government, U.P. It is, however, admitted that the investment in this Debenture was fully secured. Its charge on assets of mills was not created till the written statement was filed. The properties of following mills are mortgaged with various Nationalized Banks:-

"(a) U.P.Sahkari Katai Mills Etawah-S.B.I. Etawah

(b) U.P. Sahkari Katai Mill Kampil-B.O.I. Kampil

(c) Sitapur Sahkari Katai Mills Mahmoodabadi-SBI Sidhaul

(d) U.P. Sahkari Katai Mills Amroha-Syndicate Bank, Amroha"

8. It is submitted that the Federation has already paid a sum of Rs. 36,70,785/- towards interest to the complainant upto 30.04.2000. Thereafter, due to poor financial position and closure of its most of mills, the OP could not pay the interest. Due to consistence poor financial position Federation has requested State Government of U.P. to provide fund for payment of entire dues of all Debenture bond holders including the complainant. It is admitted that interest amounting to Rs. 96.00 lacs for the period from 01.05.2000 to 30.04.2003 is due to the complainant which could not be paid on account of recession in the textile industry Member's mills of Federation had suffered heavy losses, on account of which, a number of mills were closed down. The mills, which are running, are also in heavy losses. It is admitted that it is the prime legal responsibility of Federation to pay the due interest etc.

9. It is further contended that the complainant is not a consumer. The OP-1 has made various requests to the State Government, U.P. to provide financial assistance to discharge the liabilities of Debenture Bond holders, worker's outstanding salary, wages and P.F., & other dues. The State Government vide its letter dated 27.06.2002, informed that a decision has been taken at State Government level that the payment of liabilities of Federation be made from the sale proceeds of the assets of Federation, annexed vide Annexure-A.

10. The Maharashtra State Road Transport Corporation, Bombay, which is the Debenture Bond holder, filed a suit no. 2792 of 2000 before the Hon'ble High Court for recovering the interest and principal amount. The Receiver was appointed by the Hon'ble High Court vide Annexure-B. The complainant, who first move the Mumbai High Court gave permission for payment of office expenses, salary/Wages vide its order dated 21.09.2001 and passed an interim order on 03.12.2001 appointing Receiver. Vide copy of the Annexure -C, the Receiver has taken possession of the properties of 5 closed mills at Etawah, Magher, Nagina, Kampil & Sitapur during the period between 27.08.2002 to 5.9.2002. The Receiver has taken the formal possession of those mills and handed over the charge to the Secy./G.M. of the concerning mills. Due to workers agitation in Bulandshahar mill, the Receiver could not recover possession. The properties and assets of all the member mills are with the Receiver. Again, the running mills namely, Bahadurganj, Baeri and Mauaima are in operation but are incurring losses. These mills are managed on credit basis/buy back charge/job work arrangement. The liabilities of these firms are being piled up like non deposit of Provident Fund, Power bills, Raw material supplier's due etc. There are liabilities on Federation mills to the tune of Rs. 258.00 crore approximately, besides, liabilities of Debenture Bond holders of Rs. 100.00 crore approximately. The Banks have also filed their writ petition before the D.R.T. for recovery of Principal & interest amount. The principal amount of Banks comes to Rs. 35.53 crores. Liabilities of workers' due, i.e., salary, wages, P.G. etc. come to Rs. 34.50 crores approximately. In the Writ Petition filed by Nagina Sahkari Katai Mills Karmchari Sangharsh Union Nagina for payment of their due wages and closure compensation, the Hon'ble High Court has also passed the Interim order dated 11.12.2004 and directed to make the payment of closure compensation. The copy of the order is placed on the record as Annexure-E. The mill stated in their counter affidavit that in view of Hon'ble Court Mumbai, order dated 03.12.2001, Mill cannot sell/dispose of assets of mills to pay the closure compensation. The estimated liabilities of closure compensation of 6 closed mills will be to the extent of Rs. 1008.70 crores.

11. Again, workers of Bulandshahar Mill also filed writ petition with Allahabad High Court and High Court has also passed an interim order on 30.01.2002 and directed that V.R.S. amount of employees of mills may be paid to them. Mumbai High Court did not give the permission for payment of V.R.S. Thus the OP-1 has not released the V.R.S.

12. Government of U.P.-OP No. 2 also contested this case. The following averments were made. The U.P. Cooperative Spinning Mills Federation Limited -OP-1 does not have necessary assets to settle the liabilities. The cases are pending before various Courts. The orders of Bombay High Court dated 30.12.2001 is enclosed as Annexure CA-1 & CA-2. The Bombay High Court vide its order dated 13.01.2003 also directed the Receiver to forthwith proceed to sell the assets and properties of the 6 mills, which are closed and sale proceeds realised on selling the properties of the 6 mills, if found insufficient to satisfy the claim of the OP Trust, physical possession of the 5 working mills be also taken by the court receiver and the assets and properties thereof be sold. Copy of the order is placed as Annexure CA-3. The case of the complainant has been admitted. The OP-1 showed his inability of paying the Debenture and interest vide Annexure -CA-4 dated 27.06.2002.

13. It is submitted that the application seeking permission for liquidation of OP-1 Federation and its member mills submitted by the Registrar, Handloom and Textile Cooperative Societies, U.P. Kanpur who is also Registrar of OP-1/Federation and its member mills, has been allowed under order dated 27.06.2006 by the Hon'ble High Court of Bombay. Hon'ble High Court, however gave permission for payment of V.R.S. on 13.01.2003 and State Government of U.P. vide letters dated 16.04.2003 and 28.04.2003, released Rs. 5.00 crore being first instalment for payment of V.R.S. to the employees of Sitapur Sahakari Katai Mills Ltd., Mahmoodabad, Sitapur and the Co-operative Textile Mills Ltd., Sahkari Nagar, Bulandshahar. The amount of V.R.S. is being disbursed by the mill. M/s Punjab Communication Ltd. Chandigarh has also filed their writ petition with Civil Judge (Jr. Division) Chandigarh, M/s Kausindia Co-operative Bank, Calcutta ( Rs. 50.00 lacs) in Allahabad High Court Lucknow bench, M/s Jagatjit Cotton Textile Mills Ltd., Hoshiarpur for Rs. 9.00 lacs and M/s Kangra Central Co-operative Bank Kangra has filed writ petition for Rs. 2.00 crore before Allahabad High Court, Lucknow Bench.

14. It is also stated that Calcutta High Court also appointed a joint receiver in the case of M/s Bharat General & Textile Industries Ltd., Calcutta. Again, Sirsa Court has also issued decree on 29.09.2001. The State Government vide its order dated 27.06.2002, asked the Federation to sell the assets for the discharge of the liabilities. It is stated that since the mills are in possession of court Receiver, therefore Federation cannot sell the assets.

Submissions and Findings

15. It must be pointed out that this case is pending in this Commission for the last 13/14 years. The case was fixed for arguments on 02.09.2015. Counsel for the OPs did not appear till 2-00 P.M. At request of this Commission, counsel for the Complainant contacted the learned counsel for the Opposite Parties on telephone. On telephone, the learned counsel informed that due to death of his brother-in-law, he was unable to attend the Commission. The Commission noted that he should have informed earlier to this Commission. However, the case was adjourned for 27.01.2016 for arguments. Counsel for the Opposite Parties did not appear at all. Consequently, the counsel for the Complainant was heard ex parte.

16. Before proceeding further, it will be worthwhile to reproduce the order of this Commission dated 11.10.2011, when it was fixed before another Bench. The said order runs as follows:-

"The Financial Controller of opposite party no.1/Federation is not present and is stated to be under some personal difficulty today. However, Mr. Rakesh Upadhyay, learned counsel representing the opposite party no.1, under instructions states that as one time full and final settlement of the claim of the complainant, opposite party no.2 is willing to pay the entire principal amount deposited by the complainant. The offer is not acceptable to Mr. Jos Chiramel, learned counsel representing the complainant.

List the matter for final hearing on 01.03.2012".

17. We have heard the counsel for the complainant and gone through the written arguments submitted by him. It must be borne in mind that this petition was filed before the amendment of 2003. Consequently, the old Law will be applicable to this case. This Commission in Neela Vasant Raje v. Amogh Industries & another, (1993) 3 CPJ 261(NC), per majority, held as under:-

"We are quite clear in our mind that when a company or a firm invites deposits on promise of attractive rates of interest and prompt repayment of principal and interest on the expiry of the stipulated period with full security for the investment in the shape of the assets of the company or firm, it is in essence an offer by the company of providing to persons interested a safe avenue for investment of their funds with an assurance of prompt repayment and full security of investment. The consideration for the arrangement consists of the fact that the company or firm is enabled to use the funds deposited with it for the purposes of its business. Such a transaction in our opinion is clearly one of providing service for 'consideration' and the depositor is clearly a 'consumer' under the Act".

It was further held by this Commission in the judgment (supra), as under:

"The default on the part of the company or firm to carry out its obligations to repay the principal and/or interest constitutes, in our opinion 'deficiency' in service so as to warrant the fili

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ng of a complaint before the Consumer Forum seeking relief under the Act". 18. Counsel for the complainant has also cited two authorities reported in Laxmi Engineering Works v. PSG Industrial Institute, (1995) 2 CPJ 1 (SC) and Kalpavruksha Charitable Trust v. Tosniwal Bros (Bom) Pvt Ltd., 1999 (3) ACJ 26. The element of profit was missing in this case. 19. It is thus clear that the complainant is a 'Consumer'. 20. It is stated that OP-1 has come under liquidation. Again, liquidator has been appointed. However, OP-2 is the guarantor for the OP-1, therefore, we order that OP-1 & OP-2 will pay a sum of Rs. 2.00 crore jointly and severally to the complainant. Keeping in view all the facts and circumstances, we further direct that Opposite Parties will pay interest @9% only from 01.05.2000, till realization. The liability of OP-2 will extend to the guarantee amount. It is further made clear that the complainant will file the Execution Petition against the OPs and recover the proportionate amount from the liquidator, as per Law in consonance with the various orders passed by the various High Courts. However, there lies no bar in respect of the U.P. State. In case the High Court's orders are not applicable to this instant case, in that event the above said condition will not be applicable and the decretal amount be recovered as per law. The U.P. State must not waddle out the commitments made by it to the consumers and the public at large. The gullible persons of this country should not be taken up the garden path. Keeping in view the poor financial status of State of U.P., there shall be no order as to costs. Case disposed of.