w w w . L a w y e r S e r v i c e s . i n

ICICI Bank Limited & Others v/s M/s. Mafatlal Engineering Industries Ltd. (in liquidation) through Official Liquidator, High Court, Bombay & Others

Company & Directors' Information:- MAFATLAL INDUSTRIES LIMITED [Active] CIN = L17110GJ1913PLC000035

Company & Directors' Information:- D P ENGINEERING INDUSTRIES LIMITED [Active] CIN = U27310DL2008PLC176856

Company & Directors' Information:- A K ENGINEERING INDUSTRIES (INDIA) PRIVATE LIMITED [Active] CIN = U25206DL1997PTC085204

Company & Directors' Information:- G L ENGINEERING INDUSTRIES PRIVATE LIMITED [Active] CIN = U28920MH1981PTC023662

Company & Directors' Information:- B V M ENGINEERING INDUSTRIES LIMITED [Active] CIN = U28111DL1972PLC005983

Company & Directors' Information:- R R R ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055069

Company & Directors' Information:- A. V. ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1974PTC007360

Company & Directors' Information:- G D R ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U27109UP1971PTC003388

Company & Directors' Information:- L S ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1977PTC008484

Company & Directors' Information:- I B I ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U45202PB1974PTC003422

Company & Directors' Information:- A H B ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U35999WB1988PTC044786

Company & Directors' Information:- O K ENGINEERING INDUSTRIES PRIVATE LTD [Active] CIN = U74899DL1987PTC027660

Company & Directors' Information:- R P ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1973PTC006781

Company & Directors' Information:- S V ENGINEERING INDUSTRIES PVT LTD [Under Liquidation] CIN = U74210TG1981PTC003174

Company & Directors' Information:- BOMBAY ENGINEERING COMPANY LIMITED [Dissolved] CIN = U99999MH1932PTC001827

Company & Directors' Information:- BOMBAY INDUSTRIES LIMITED [Liquidated] CIN = U99999MH1938PTC002875

    Notice of Motion No.2027 of 2005 In Suit No.3156 of 1999 And Notice of Motion No.2093 of 2005 In Misc. Petition No.27 of 2000

    Decided On, 26 March 2007

    At, High Court of Judicature at Bombay


    For the Appearing Parties : N.M. Ganguli for Bombay Mazdoor Union (Worker's Union) Birendra Saraf and Mr. Arun Siwach i/b. Amarchand & Mangaldas & S.A. Shroff & Co. Kalpesh Parekh i/b. Pragna Thakkar & Co. for IDBI Ltd. Venkatesh Dhond & Ms. Meenakshi Mhapankar i/b. M/s. V. Deshpande & Co for Kotak Mahindra Bank Ltd. Assignee of ICICI Bank Ltd Sanjay Dubey i/b. M.V. Kikni & Co. for FCL Ltd. G.W. Mattos, Govt. Pleader Gopal Singh, Sr. Technical Asstt. Official Liquidator High Court, Bombay R.S. Apte for Thane Municipal Corporation., Advocates.

Judgment Text

Smt. Roshan Dalvi, J.

1. The Applicant in both these Notices of Motion is the Sub Divisional Officer, Thane, Collector Office, District Thane. He has applied for discharging the Court Receiver appointed in the above Suit and Petition by orders dated 12th October, 2001 and 23 rd July, 2003 for part of the suit properties.

2. The Applicant claims a part of the suit properties being 25.58.8 hectors of open vacant land out of which 18.32 hectors is resumed by the State Government and in possession of the Applicant, 3.54 hectors being allowed to the Railways by the Government and 4.18 hectors having been granted to one Nutan Workers Society by the Government. The Applicant also claims .70 hectors of land forfeited by the Government under order dated 12th March, 1999 passed by Tahasildar, Thane and taken possession by the Government for nonpayment of revenue by the Defendants/Respondent s being Mafatlal Engineering Limited (in liquidation) (Mafatlal). This claim is for part of the lands from the total 58.82.8 hectors of the land belonging to the first Defendant Company in Suit No.3156 of 1999 and Misc. Petition No.27 of 2000.

3. It is the case of the Applicant that the lands claimed by the Applicant were acquired under a notification dated 8th February, 1949 issued under Section 6 of the Land Acquisition Act, 1894 (LAA) for the erstwhile company of Mafatlal for a specified purpose, which purpose not having been complied have been resumed by the Government under an order dated 9th January, 1967, which initially came to be stayed in Appeal after which the stay was lifted and possession of the lands was taken by the Government under the final resumption made on 16th April, 1990 under the provisions of Maharashtra Land Revenue Code, 1966 (LRC). The final order of resumption dates back to the first resumption made in 1967.

4. It is the case of the Applicant that since the lands were resumed since 1967 and finally since 1990 Mafatlal could not have created any mortgage of the said properties in favour of the Plaintiffs as well as the Petitioner in the above Suit as well as in the Misc. Petition. They therefore, contend that the Court receiver came to be appointed for the lands not belonging to Mafatlal and such appointment to the extent of the lands resumed by the Government cannot be sustained. They, therefore, apply for discharge of the Court Receiver and for setting aside the order of the appointment of the Court Receiver to that extent.

(1). The Notification dated 8th February, 1949 shows that the part of the Suit land which the applicant now claims as resumed lands (the said lands) came to be acquired for the manufacture of spinning machinery in India for National Machinery Manufacturer s Limited Company (the erstwhile Company of Mafatlal).

(2). Mafatlal entered into an agreement with Government of Maharashtra on 14th May, 1949 under which the lands were granted to Mafatlal to utilise them for the construction of residential quarter s for their workmen. The lands were not utilised for the purpose for which they were acquired.

(3). The Additional Collector, Thane, Government of Maharashtra by its order dated 9th January, 1967 resumed the lands for breach of conditions (b), (c) and (d) by Mafatlal under Section 41(4) of the LLA. Notice of the said order was given to Mafatlal.

(4). Mafatlal filed an appeal therefrom, as provided under the LRC, and initial stay of the order of resumption was granted in the appeal on 31st January, 1967.

(5). The Under Secretary, Revenue and Forest Department of the State of Maharashtra vacated the said stay on 2nd February, 1988. Mafatlal was directed immediately to handover 64 acres 11 gunthas of the lands acquired from the National Machinery Manufacturing Company to the Government.

(6). On 9th April, 1990 the Tahasildar, Thane issued a notice to Mafatlal that the Circle Officer and Talathi shall take possession of the land on 16th April, 1990 at 11.00 a.m.

(7). On 16th April, 1990 the lands were resumed by the State Government as per the provisions of the LRC. A panchanama to that effect was made, and a report submitted. A mutation entry to that effect came to be made on 2nd September, 1990 as per the order in Appeal dated 2nd February, 1988, which related back to the initial order resuming the land dated 9th January, 1967.

(8). The mutation entry in the Revenue record shows the said lands resumed from Mafatlal upon the breach of terms and conditions of the agreement entered into by Mafatlal pursuant to the acquisition of the land for it.

9). On 30th October, 1990 the State Government refunded Rs.1,08,750 / - to Mafatlal after adjusting 1/4th of the amount deposited by the Company at the time of the acquisition with the Government, as per the order of the Assistant Secretary Revenue and Forest Department of the State Government.

(10). The register of receipts and expenditure maintained by the Government shows the initial entry of withdrawal of the said amount from the Treasury on 30th March, 1991 and the entry of payment of the said amount to Mafatlal on 3rd April, 1991.

5. In the mean time Mafatlal executed mortgages by deposit of title deeds in favour of the Plaintiffs and Defendant s in the above Suit and Misc. Petition as also several other Banks without disclosing to any of the Financial Institutions the factum of their lands being acquired for them by the Government and granted to them under the acquisition as also of the factum of the said lands being resumed. Surprisingly the investigation of the said lands of the Company's properties at Kalva, Thane made as far back as on 15th February, 1973 shows the search having revealed that the lands were included in the Sanad issued by the Government for the properties acquired by the Government for and on behalf of the Company. The agreement entered into by Mafatlal for a factory for manufacture of machinery came to be specifically recited in part 2 of the search report being the Investigation of Title relating to the Government Sanad. It detailed that the terms and conditions of the Sanad granted by the Government upon such acquisition was to use the land so acquired for manufacture of spinning machinery. It also mentioned that the land was liable for resumption by the Government being not used for the purpose for which it was acquired by the Company and if breached any of the terms and conditions of the Sanad. It further stated about the prior notice required to be given by the Government pointing out the breach which could be repaired within 6 months and compensation was payable to the Government . Despite specific note of the resumption made in the search report upon the investigation of the title of Mafatlal, none of the financial institutions cared to see whether the land was resumed by the Government as Mafatlal had not used the land for the purpose of manufacturing of spinning machinery. No inquiries were made with the Revenue Authorities which could have revealed the resumption of the land by the Government by the initial order dated 9th January, 1967.

6. It is the case of the applicant that the order of resumption dated 9th January, 1967 became final after the appeal was dismissed and the stay was vacated. Though possession of the land was taken in 1990, the order of resumption applies as from 9th January, 1967, and the mutation entry bears note of the said order. Consequently it is the case of the applicant that the mortgage deed executed by Mafatlal which are all after 1978 in favour of various financial institutions for various parts of the said lands could not have been so entered into without notice to the Government. The claims of the Plaintiffs and the Petitioners in the above Suit and Petition under those mortgage deeds, therefore, could not be sustained with regard to the said lands.

7. It is further contended that the creation of the mortgages of the acquired lands without notice to the Government is bad and hence also the order of appointment of Court Receiver in respect of the acquired lands cannot be sustained. My attention has been drawn to Section 44-A of the LAA under which the company for which any land is acquired is not entitled to transfer the land inter alia by a mortgage except with the previous sanction of the appropriate Government. Mafatlal was, therefore, to take previous sanction of the State Government, which it failed to do and which the Financial Institutions failed to require it to do. Since there is a complete restriction under the said transaction, any transfer effected in derogation of the mandate under the said Section cannot be sustained and rights cannot be claimed by the Transferees.

8. My attention has also been drawn to the provisions of Section 149 of LRC, under which all the acquisitions of rights inter alia by a mortgage were to be reported to the Talathi within 3 months of the acquisition. Neither Mafatlal nor the Financial Institutions as the Mortgagees informed the Government of the acquisition of the rights under the said mortgages. Various mortgages by deposit of title deeds dated 24th April, 1978 and 2nd May, 1983 executed by Mafatlal and annexed to the affidavit in reply of Defendant No.10 in Suit No.3156 of 1999 who has taken over the assets and liabilities of Mafatlal, show that they are unregistered document s, to that effect. Consequently upon non- registration of the Deeds of Mortgages, the mandate of reporting the acquisition of rights under Section 149 of the LRC remained, but was not carried out.

9. The Applicants, therefore, had no means of knowing about the said mortgages. It is the case of the Applicants that only after the Court Receiver came to be appointed and the lands were to be sold and required to be measured by the District Inspector of Land Records (DILR) that the Government came to know of the mortgages wrongfully created.

10. It is argued on behalf of the Financial Institutions that they had taken permission from the Urban Land Cealing Authorities from 1977 to 1988 in respect of the said lands for which the Transfers by way of mortgages were created. It is contended that one arm of the Government must be taken to have knowledge of the facts known to the another arm of the Government. That contention is entirely incorrect. The permissions from the ULCA are required to be taken only with regard to the transfer of excess lands of Mafatlal under the provisions of Urban Land Ceiling and (Regulation) Act, 1976 (ULCAR). This has nothing to do with the authorities under the LRC which entitles the State Government itself to be reported of the acquisition of rights.

11. It may at once be stated that information given to the authorities under ULCAR cannot be imputed for example, upon the tax department which required notifying the fact of transfer by obtaining the certificate under Section 269 of the Income Tax Act. It can therefore, be seen that it is correct that the applicant was not informed of the transfer, had no knowledge of the transfer and that the transfer was effected despite of restriction on transfer under the LAA. Consequently the Court Receiver appointed pursuant to the said transfer having been effected by mortgage by depositing of title deeds in favour of the Financial Institutions cannot be sustained, and he cannot be allowed to sell inter alia the said lands.

12. It is contended on behalf of the Financial Institutions that an application by way of Notices of Motion for the relief sought is not maintainable and that the Government must sue on title and for a declaration that the lands are resumed and apply for reliefs in such a suit filed by them. That contention is also incorrect. The State Government needs no declaration. The State Government has dealt with the lands as its owner. The State Government has admittedly granted a part of the said lands to one Nutan National Manufacturing Co-operative Housing Society for residential purpose. Similarly the State Government has granted a part of the said land to the Railways. The Applicant is in possession of the remainder of the lands. All that the applicant desires in this application is to have the Court Receiver discharged in respect of the lands so resumed. The Government's title is not challenged by any one. The resumption is a part of public records under the mutation entry which imputes notice to all concerned. No suit is therefore, required to be filed for any declaration.

13. The Applicant has relied upon the similar order in a similar Notice of Motion taken out in Suit No.969 of 1999, in which Court Receiver came to be appointed without notice to Maharashtra Housing and Area Developing Authority (MHADA) which had acquired part of the properties under the notification so that those properties came to be vested in the State Government. Though the Plaintiffs were aware of the acquisition proceedings and the substantial interest of MHADA in the properties, a suit for partition came to be filed and a decree obtained without notice to MHADA. The Court Receiver came to be appointed of the Plaintiff's share upon partition and on the application of MHADA the order of appointing Court Receiver of the lands of MHADA came to be recalled with costs of Rs.25,000/- payable by the Plaintiffs to MHADA.

14. The contention on behalf of the Financial Institutions that only the parties in possession can maintain the application such as this under the provisions of Order 40 Rule 1(2) of the CPC is also therefore, misconceived. The applicant has contended that the Court Receiver could not have been appointed of the properties resumed by Government under the Order dated 9th January, 1967. The Court Receiver can be appointed only on the properties that belong to the Plaintiff at the time of the filing of the Suit or the Petition. In this case Mafatlal executed mortgages by deposit of title deeds with regard to the said lands from amongst their entire land. The Plaintiffs and the Petitioners could not have been mortgaged the said lands. Hence, they could not have got appointed the Court Receiver in respect of the lands that were resumed by Government under the order dated 9th January, 1967, the initial stay pending the appeal from the order notwithstanding. In fact the Financial Institutions could not have acquired any rights under the said mortgages by deposit of title deeds since there was restriction on the transfer except with the previous sanction of the appropriate Government under LAA. Hence, the Applicant, contends that order appointing Court Receiver, to the extent of the said lands, must be recalled.

15. It is argued on behalf of the Financial Institutions that Mafatlal made a reference under the Sick Industrial Companies Act before the Bombay Industrial and Financial Reconstruction Board (BIFR) in 1987, and hence, the Government, could not resume the said lands on 16th April, 1990. This contention is raised upon the provisions of Section 22 of the Sick Industrial Companies Act, 1985 (SICA).

16. The said Section is in respect of suspension of Legal Proceedings, Contracts etc. Under the said Section no proceedings for winding up of the Industrial Company, execution, distress or the like against any of its properties or for appointment of Receiver in respect thereof can be initiated or continued or any suit for recovery of money for enforcement of security against it can be followed or continued. This Section makes no reference to third parties like the Government or other Bodies dealing with the properties of the company under provisions of other special laws. Consequently and by way of illustration it may be mentioned that the properties of the Company could be acquired, excess land of the Companies could be taken by the Urban Land Cealing Authority etc. In fact the reference to BIFR has since been dismissed on 7th April, 1995. An appeal therefrom has been dismissed on 22nd April, 1997. Mafatlal has been ordered to be wound- up on 30th September, 1997 in Company Petition No.743 of 1990 filed during the pendency of the BIFR Reference. It is now a Company in Liquidation.

17. There is another part of the property of Mafatlal which has been resumed by the Government for non- payment of Revenue. This relates to lands not acquired by the Government for Mafatlal. It relates to the other lands acquired by Mafatlal privately from farmers etc.

(1). On 13th June, 1998 the Tahasildar, Thane issued written notice of forfeiture under Rule 6 of the Maharashtra Realization of Land Revenue Rules, in respect of .70 hectors of lands of Mafatlal at Kalwa, District: Thane for default in payment of Revenue of Rs.77,77,165/- under Account No.313 for the survey numbers mentioned therein. Notice was given that for non- payment of the said Revenue, the occupancy / holding would be forfeited to the State after expiry of 15 days. The Revenue was not paid.

(2). On 13th June, 1998 Tahasildar, Thane further issued an order of attachment of immovable properties under Rule 11 of the Maharashtra Realisation of Land Revenue Rules restraining and prohibiting Mafatlal from transferring or charging the properties in the schedule by sale, gift or otherwise. The schedule showed various survey number s aggregating to .70 hectors of the lands of Mafatlal.

(3). The said two notices in Forms 2 and 4 were served upon Mafatlal on 13th June, 1998 and a report to that effect under the panchanama was made on that day.

(4). A public notice of the said fact came to be given on 29th June, 1998.

(5). The property was sought to be put up for auction on 11th March, 1999 by the Tahasildar, Thane upon making a report to the Collector, Thane. The Revenue Accounts putting on record that the public notice was published in News paper and if nobody participated in the auction, the Government would purchase at Re.1/ -.

(6). A public auction was held on 12th March, 1999. None bid at the auction. The State Government purchased the property at Re.1/ - under the provisions of Section 220 of LRC.

(7). A report to that effect was made on 12th March, 1999 or Tahasildar, Thane to the Talathi Kalva.

(8). The Revenue records came to be altered and a record was made in the Record of Rights mentioning the said fact together with the aforesaid survey number s aggregating to .70 hectors of Mafatlal's land.

18. It can be seen that the Financial Institutions as well as Mafatlal maintained a stoic silence as against the Government for the lands acquired by the Government as well as the private lands auctioned by the Government and did not inform the Government about the transfer executed by way of the mortgage by deposit of Title Deeds, and this was despite the notice given under Rule 11 of the Order of Attachment of Immovable Property for recovery of arrears of land revenue prohibiting Mafatlal from inter alia mortgaging the said property, so attached.

19. It need hardly be stated that the act of Mafatlal is a egregious nonchalance to the notices issued by the Government and the laws by which it was governed. In complete defiance of and by sheer insolence Mafatlal sought to create mortgages and raised loans upon the properties that did not belong to it, and which were resumed or auctioned by the Government after following the prescribed procedure.

20. Mr. Dhond on behalf of Kotak/Financial Institutions relied upon Section 536 and 537 of the Companies Act, 1956. The purpose of such reliance is completely indiscernible. Section 536 relates to avoidance of transfer of shares upon a voluntary winding up of the Company, which does not apply for the case of the Mafatlal. Section 537 relates to avoidance of attachment s, executions etc in winding up by the Tribunal. It therefore, relates to the avoidance by the Company of any proceedings in execution (the word ?etc?, which must be read ejusdum generis). Sub Section 2 of Section 537 specifically excepts proceedings for recovery of any taxes or impost or dues payable to the Government . Hence, the application is expressly exempt from any bar under the Companies Act, 1956.

21. Consequently it is seen that there is no attachment or execution which Mafatlal can avoid and any case such avoidance does not relate to the proceedings of the Government for recovery of land revenue dues.

22. The resistance by the Financial Institutions and /or Mafatlal to the Government auction cannot be sustained. Mafatlal had erred in respect of all the applicable laws since the inception. It did not use the lands acquired for it for the purpose for which it was meant. It challenged the resumption by the Government two decades after the acquisition when the lands were not put to use as required. It failed in its appeal. It was returned a part of the deposit after deduction of the damages. It retained that with itself. Despite the knowledge of the initial order of resumption, it failed to bring it to the notice of its Financers. The Financial Institutions did not take the care and caution required of them as public bodies. They entered into transactions of mortgage and advanced vast amount s to Mafatlal by way of loans. Mafatlal defaulted in payments of the amount s. The above Suit as well as the Petition came to be filed by two Financial Institutions showing others as

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claimants. All the Public Bodies came to be defrauded. They, on their part, suppressed their transactions from the Government. Whereas Mafatlal breached the provisions of Section 44A of the LAA, Section 149 of the LRC, the notice prohibiting it from transferring its property by sale, gift etc (which includes a mortgage as one of the modes of transfer under the Transfer of Property Act, 1882), the Financial Institutions failed to take note of the Sanad which came to its notice upon the search being taken for investigation of the title of Mafatlal and failed to make inquiries with the Government about the position of the acquired lands of Mafatlal which were offered by way of security to them. 23. Consequently 25.58.8 hectors of the land resumed by the Government (as shown in items 2, 3 and 4 of Exhibit- C which are described in Exhibit- E to H of the affidavits in support of the above Notice of Motions) as well as .70 hectors of the land auctioned by the Government shown in Exhibit- D of the said affidavit cannot form the suit lands, in the above Suit and Petition, for which a Receiver can legitimately be appointed. Similarly the said lands cannot be sold for payment of the dues of the Financial Institutions. Hence, both the Notices of Motion taken out by the Applicant deserve to be granted. 24. The Receiver stands discharged of the lands shown in Exhibits- D, E, F, G & H in the above Notices of Motion aggregating to 25.58.8 hectors and .70 hectors. 25. The Defendant No.10 in Suit No.3156 of 1999 who has taken over the assets and liabilities of Mafatlal and who has shown cause to this Notice of Motion also on behalf of the Financial Institutions shall pay costs of these Notices of Motion fixed at Rs.10,000 / - to the Applicant. 26. The DILR shall now demarcate the lands showing the lands resumed by the Government shown in Exhibits- E, F, G and H as well as the lands forfeited/auction purchased by the Government on 12 th March, 1999 shown in Exhibit- D to the above Notices of Motion. Defendant No.10 in Suit No.3156 of 1999 shall pay the costs of demarcation. 27. The Receiver may proceed to sell the remaining lands of Mafatlal as directed in the Order appointing Court Receiver and as per the directions passed thereafter in the above Suit and /or Petition. 28. This order is stayed for 3 weeks.