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Mukund Iron & Steel Works Ltd. (Petitioners) And Gannon Dunkerley & Co. Ltd. and another (Applicant) v/s Maharashtra Industrial Development Corporation and others

    COMPANY APPLICATION NOS. 261 & 398 OF 1995 IN COMPANY PETITION NO. 525 OF 1977

    Decided On, 23 November 1995

    At, High Court of Judicature at Bombay

    By, THE HON'BLE MR. JUSTICE D.R. DHANUKA

    T.R. Andhyarujina with N.G. Thakkar & M.P.S. Rao i/b M/s. Mahesh Jani & Co., for applicant. R.M. Sawant i/b M/s. Little & Co., for respondents Nos. 1 to 3. E. Selvaraj, Dy. Official Liquidator, High Court, Bombay, present.



Judgment Text

D.R. DHANUKA, J.


The respondent No. 1 is the owner of eight plots of land bearing Nos. A-63 to A-67 and C-23 to C-25 situated in the Dombivili Industrial Area of respondent No. 1 admeasuring about 32760 sq. metres. On 13th August, 1973, the respondent No. 1 executed a lease in respect of the said eight plots of land in favour of M/s. Eldee Wire Ropes Limited (Now in liquidation) for a period of 95 years commencing from 1st May, 1965. The said lease is subsisting for its unexpired period. M/s. Eldee Wire Ropes Limited is hereinafter referred to as "The Company". With consent of Maharashtra Industrial Development Corporation, the said company created a mortgage on the said eight plots of land etc. in favour of State Bank of Hyderabad in lieu of the said bank providing credit facilities to the said company. Very large amounts were due and payable by the company to the State Bank of Hyderabad.


2.By an Order dated 12th July, 1978, passed in Company Petition No. 525 of 1977, the said company was directed to be wound up and the Official Liquidator attached to the High Court was appointed as Official Liquidator of the said Company.


3.Gannon Dunkerley & Co. Ltd. is applicant No. 1 in Company Application No. 261 of 1995. By letter dated 16th March, 1984, addressed to the State Bank of Hyderabad, the applicant offered to purchase all the assets of the Company in liquidation for a sum of Rs. 65,00,000/- alongwith leasehold interest of the Company under liquidation in the said eight plots. The State Bank of Hyderabad approached respondent No. 1 for its consent for sale and transfer of eight leasehold plots of land referred to hereinabove. On 31st October, 1984, the respondent No. 1 passed an order which is directly relevant for purpose of deciding this application. A copy of the said order is annexed as Exhibit "C" to the affidavit of Shri Masur Kuppuswami Nilakant Kaushik dated 10th May, 1995. The said order makes reference to the abovereferred eight plots of land bearing No. A-63 to A-67 and C-23 to C-25 situated in the Dombivili Area of respondent No. 1. The said order describes the applicant No. 1 as the proposed transferee of the said plaintiffs. The said order makes reference to various letters addressed by the State Bank of Hyderabad to respondent No. 1 for consent of respondent No. 1 in respect of transfer of the said eight plots of land. By the said order, the respondent No. 1 granted its consent for transfer and assignment of interest of company under liquidation in the said plots of land as a lessee under the said lease i.e. lease dated 13th August, 1973. It is stated in the said order dated 31st October, 1984 passed by respondent No. 1 that M.I.D.C. was pleased to grant its consent for transfer of the lessee's interest in the above referred plots without charging any amount of additional premium.


4.The said order dated 31st October, 1984 refers to the name of proposed transferee in respect of the lessee's interest in the said plots of land as under:

"Transferee: M/s. Gannon Dunkerley & Co. Ltd."

Clause 3 of the said order dated 31st October, 1984, reads as under :

"This consent is restricted to the transfer and assignment of the said lease in favour of the transferee alone and in case the transferee proposes to make any further transfer or assignment of parting wholly or partially with the possession of the plot of land demised under the said lease or any part thereof the Transferee will have to make a fresh application for consent."

This is not a case of `further transfer' by applicant No. 1 in favour of applicant No. 2. The leasehold interest of the Company under liquidation in the abovereferred eight plots of land is still not transferred in favour of any one so far. This is a case of first transfer by the Official Liquidator in favour of Applicant No. 2 as a nominee of Applicant No. 1 in pursuance of order of the Court.


5.On 11th December, 1984, the State Bank of Hyderabad made Company Application No. 386 of 1984 in this Court for a direction to the Official Liquidator to accept the offer of Applicant No. 1 herein for purchase of all the assets of the Company under liquidation on the terms and conditions contained in letter dated 16th March, 1984, addressed by Applicant No. 1 to State Bank of Hyderabad and has confirmed by letter dated 15th June, 1984, addressed by the State Bank of Hyderabad to Applicant No. 1. The offer made by Applicant No. 1 was a composite offer for purchase of all the assets of the company including the leasehold rights of the company under liquidation in the said eight plots of land. The Official Liquidator obtained the valuation report. By order dated 30th January, 1985, Bharucha, J., as His Lordship then was (now the Honourable Justice of the Supreme Court of India) passed an order making the Judge's summons i.e. Company Application No. 368 of 1984, absolute in terms of prayer (a) thereof. While passing the said order the learned Judge observed in the said order that having regard to the valuation report it appeared to him that the Judge's summons should be made absolute in terms of prayer (a). Thus the transaction for transfer of leasehold rights in the said eight plots of land alongwith other as sets of the Company under liquidation was sanctioned by this Court as a Company Court and the Official Liquidator was directed to accept the offer made by applicant No. 1. This is not a case of private transaction between the State Bank of Hyderabad and the applicant No. 1 without intervention of the Company Court. This is a case of transfer of assets belonging to Company under liquidation during the course of winding up with the sanction of the Court. The transfer sanctioned by the Court inter alia in respect of eight leasehold plots of land must be properly lawfully and finally effectuated with aid and assistance of this Court.


6.On 3rd May, 1985, Parekh, J., passed an order in Company application No. 107 of 1985 made by the applicant No. 1 herein in terms of the minutes of the order after hearing the Official Liquidator and the learned counsel for State Bank of Hyderabad fixing the instalments by which the abovereferred sum of Rs. 65 lakhs was thus made payable by applicant No. 1 by instalment as set out in the said order. By Clause 5 of the said order it was provided that the Official Liquidator shall release the payments of the amounts which may be received from applicant No. 1 to the State Bank of Hyderabad subject to payment of just and legal charges and expenses of the Official Liquidator. Thus it is clear that the State Bank of Hyderabad did not receive any amounts directly from Applicant No. 1 but received the agreed amounts as a secured creditor, from the Official Liquidator as provided in order passed by Parekh, J., on 3rd May, 1985, referred to hereinabove. The State Bank of Hyderabad acted as a secured creditor the course of winding up as aforesaid.


7.On 11th August, 1989, Variava, J., passed order in Company Application No. 302 of 1987 directing payment of balance of the purchase price of Rs. 48,75,000/- together with interest by instalments as set out therein.


8.On 17th June, 1993, the applicant No. 1 took out Judge's summons No. as Company Application No. 398 of 1993, in this Court for a direction to the effect that the Official Liquidator do grant sale, convey transfer and assign all the assets, land, building, plant and machinery of company under liquidation etc. in favour of the applicant No. 1 or its nominee or nominees. The said Judge's summons was addressed to the Official Liquidator as well as to the State Bank of Hyderabad. It was stated in para 5 of the affidavit in support of the Judge's summons that the Applicant No. 1 i.e. Gannon Dunkerley & Co. Ltd. had already paid instalments upto and inclusive of 15th September, 1992 instalment payable under consent order dated 11th August, 1989 leaving only the last instalment to be paid alongwith interest. By order dated 22nd July, 1993, this Court made the said Judge's summons absolute in terms of prayer (a) of the judge's summons and the Official Liquidator was thus directed to convey and transfer of the assets of the Company under liquidation in favour of Applicant No. 1 or its nominee or nominees. The State Bank of Hyderabad was claiming certain additional amounts from applicant No. 1 in lieu of interest etc. It is recorded in the said order that the applicant No. 1 had handed over a cheque for Rs. 11,27,000/- to the learned Counsel for State Bank of Hyderabad in Court on account of interest payable. Thus all the disputes regarding payment of consideration amount to the Official Liquidator in pursuance of order passed by this Court as aforesaid came to an end.


9.On 8th December, 1993, the applicant No. 2 company i.e. M/s. Wintri Engineering & Chemicals Pvt. Ltd. was incorporated as a Company under the Companies Act I of 1956. It is the case of the applicant and it is believable that the applicant No. 2 is the subsidiary company of applicant No. 1 w.e.f. 9th December, 1993. The applicants have annexed certificate of incorporation in respect of applicant No. 2 being certificates of incorporation dated 8th December, 1993 issued by Additional Registrar of Companies bearing No. 11-75503 of 1993 as Exhibit "A" to the affidavit in rejoinder. The applicants have also annexed a certificate issued by G.P. Agarwal & Co., Chartered Accountants being certificate dated 8th April, 1994, to the effect that the applicant No. 2 had become a subsidiary of applicant No. 1 in terms of section 4 sub-section (1) Clause (A) of the Companies Act, 1956 from 9th December, 1993 i.e. right from inception. It appears that the applicant No. 2 continues to be subsidiary of applicant No. 1. Section 4(1) of the Companies Act I of 1956 inter alia provides that for purpose of the Act, a Company shall, subject to the provisions of sub-section (3) be deemed to be subsidiary of another controls composition of its Board of Directors.


10.It also appears from Annual Report published by Applicant No. 1 for the year 1994-95 that the Applicant No. 2 is subsidiary of Applicant No. 1 w.e.f. 9th December, 1993 by virtue of the control of composition of Board of Directors of Applicant No. 2 company.


11.It is the case of applicant No. 1 that the applicant No. 1 is entitled to nominate applicant No. 2 for obtaining the transfer of the leasehold rights in the abovereferred eight plots and other assets of the company under liquidation and the applicant No. 2 is a subsidiary company of applicant No. 1. These averments are not controverted by or on behalf of respondent No. 1.


12.The applicant No. 1 has already paid the entire consideration amount payable by the applicant No. 1 towards the purchase price and the amount of interest for obtaining the transfer of the assets of the company under liquidation including the transfer of leasehold rights in the eight plots referred to in the earlier part of the order.


13.By letter dated 10th December, 1993, the applicant No. 1 approached respondent No. 1 for its consent to transfer the leasehold rights in respect of the said 8 plots in favour of applicant No. 2 as nominee of applicant No. 1. The applicant No. 1 pursued the said request by its advocates letter dated 25th January, 1994. The respondent No. 1 declined to give its consent for transfer of the leasehold rights in the said eight plots of land and/or transfer such leasehold rights in favour of the applicant No. 2 unless differential amount of premium computed at Rs. 65 lakhs was paid by applicant No. 1.


14.By Judge's summons herein i.e. Company Application No. 261 of 1995, the applicants have sought direction from this Court at Company Court to respondent No. 1 to 3 not to press for payment of premium in sum of Rs. 65 lakhs (Rupees Sixty Five Lakhs) and set aside the demand made by the respondent No. 1 for payment of such premium by its letter dated 6th January, 1995, copy whereof is exhibit "A" to the affidavit in support of Judge's summons. By this Judge's summons the applicants have also sought a direction from this Court to respondents No. 1 to 3 to transfer the leasehold rights in respect of eight plots of land referred to hereinabove in favour of applicant No. 2


15.The learned Counsel for respondent No. 1 has raised several contentions at the bar while opposing the application herein.


16.The first question which arises for consideration of the Court is as to whether this Court has jurisdiction to entertain the application made by the applicants herein i.e. Company Application No. 261 of 1995.


17.Shri R.M. Bardey, an officer of respondent No. 1 has filed this affidavit dated 17th November, 1995 and has formulated the abovereferred objection as set out in para 2 of the said affidavit. It is contended that the application herein does not come within the ambit of section 446 of the Act has no application at all to this proceeding. It is contended that the State Bank of Hyderabad being a secured creditor was outside the winding up proceedings and the respondent No. 1 as a third party is unconcerned with the winding up proceedings herein.


18.In my opinion, there is no merit in this contention. Section 446 of the Companies Act I of 1956 is totally irrelevant for purpose of deciding/considering the application herein. Section 446 of the Companies Act I of 1956 deals with the subject matter of stay of suits or proceedings on winding up order being passed or a provisional liquidator being appointed. No question of stay is involved in this proceedings. The said section is thus totally irrelevant for our purpose.


19.Section 457(1)(c) of the Companies Act I of 1956 provides that the liquidator in a winding up by the Court shall have power, with the sanction of the Court, to sell the moveable and immovable property and actionable claim of the company by public auction or private contract as more particularly set out therein. The assets directed to be sold and transferred by the Official Liquidator inter alia comprise of leasehold rights of the company under liquidation as lessees in respect of the abovereferred eight plots for the unexpired period of lease. The Company Court has the jurisdiction and the powers to issue all necessary, ancillary and incidental directions so as to effectuate the main power contained in section 457(1)(c) of the Companies Act I of 1956 read with other enabling provisions of the Act. The Company Court has jurisdiction to issue necessary direction to one and all in respect of matters interlinked with disposal of property of Company under liquidation by the Official Liquidator with sanction of the Court. Perhaps Shri. R.M. Bardey was not at all conscious of the order passed by Bharucha, J., on Application No. 386 of 1984 sanctioning sale of assets of the company under liquidation by the Official Liquidator in favour of Applicant No. 1. This is a case of sale by the Official Liquidator in respect of the assets of the company under liquidation. The order is liable to be read alongwith subsequent orders of the Court, summarised in earlier part of this order.


20.The learned Counsel for respondent No. 1 has interpreted order dated 31st October, 1984 passed by M.I.D.C., copy where of is Exhibit "C" to the affidavit in support of the Judge's summons so as to convey that the said order does not exempt the applicants herein from payment of amount of differential premium. In this respect the questions required to be considered by the courts may be formulated as under:


(a)Whether it is a case of transfer of leasehold plots by applicant No. 1 in favour of applicant No. 2?

(b)Whether it is a case of first transfer or whether it is a case of second transfer?

21.Clause 3 of order dated 31st October, 1984 clearly provides that if M/s. Gannon Dunkerley & Co. Pvt. Ltd. decides to make further transfer of the leasehold rights in the said plot of land in favour of any other party, the second transferee will have to make a fresh application to respondent No. 1 for its consent. The Applicant No. 1 is not effecting transfer of asset herein in favour of Applicant No. 2. No transfer of lease hold rights in still effected in favour of applicant No. 1. In the earlier proceedings, the Applicant No. 1 sought direction from this Court to the Official Liquidator to execute the Deed of Transfer in favour of the nominee of Applicant No. 1 i.e. Applicant No. 2. The Official Liquidator is required to execute the Deed of Transfer in respect of the assets of the company under liquidation in favour of the Applicant No. 2 as a nominee of Applicant No. 1. This Deed of Transfer/Deed of assignment when executed would be the first Deed. Thus later part of Clause 3 of Order dated 31st October, 1984 has no application at all. This is not a case where Applicant No. 1 is seeking to make further transfer its leasehold rights in the abovereferred eight plots of land in favour of the Applicant No. 2. In my opinion, the submission made by the learned Counsel for respondent No. 1 suffers from misconception and fallacy and with respect is not correct. The submissions made by respondent No. 1 as aforesaid is not acceptable to the Court. The Official Liquidator is bound by Order of this Court passed on 22nd July, 1993 passed on Application No. 398 of 1993. If the Official Liquidator execute the deeds of transfer in favour of the Applicant No. 2 as a nominee of Applicant No. 1 in pursuance of the order of the Court, execution of such deed of transfer or assignment cannot be equated to the transfer of leasehold rights in the said plot of land by Applicant No. 1 in favour of Applicant No. 2. The lease executed by respondent No. 1 in favour of the company under liquidation is not yet transferred in favour of Applicant No. 1. No document of transfer is executed in favour of Applicant No. 1. The respondent No. 1 has agreed not to charge any amount of premium for effecting of transfer of leasehold rights in the abovereferred plots of land in favour of M/s. Gannon Dunkerley & Co. Ltd. The decision made by respondent No. 1 contained in its Order dated 31st October, 1984 is binding on respondent No. 1. In my opinion, it matters not that the transfer of lease is now required to be recognised by respondent No. 1 in favour of Applicant No. 2 as a nominee of Applicant No. 1 after the Deed of Assignment is executed by the Official Liquidator in favour of Applicant No. 2 as a nominee of Applicant No. 1 as aforesaid. The respondent No. 1 is bound to do so without charging any premium in lieu thereof.


22.The learned Counsel for respondent No. 1 has submitted that the Applicant No. 2 was got incorporated by Applicant No. 1 as a separate company only with a view to evade payment of transfer fee payable in respect thereof to respondent No. 1. I have no hesitation in rejecting this submission as well. The onus of proving the alleged circumvention or alleged fraud on the part of Applicant No. 1 in getting Applicant No. 2 incorporated as its subsidiary is on respondent No. 1. The respondent No. 1 has failed to discharge the said onus. In my opinion it is in the interest of justice that reasonable conditions be imposed on the applicants before the effective relief is granted as prayed for.


23.The learned Counsel for respondent No. 1 has submitted that the respondent No. 1 is not bound by order of this Court passed on 22nd July, 1993 inasmuch as the said Order was passed behind his back. By the said Order the Official Liquidator is directed to execute the Deed of Transfer including in respect of leasehold plots in favour of the Applicant No. 1 or their nominee or nominees. The said order does not affect right of respondent No. 1 to claim amount of premium if any amount of premium is recoverable by respondent No. 1 in law before effecting the transfer of leasehold rights of the company under liquidation in favour of Applicant No. 2.


24.Both the learned Counsel invited the attention of the Court to the transfer guidelines published by respondent No. 1 on 26th January, 1994 by its Circular No. MIDC/DCM/TRN/G-11/648.


25.The said transfer guidelines clearly provide that in cases of formal transfer as set out therein no differential amount of premium shall be payable but the standard transfer fee alone shall be payable at the rate fixed by the Corporation. The principle of these guidelines may be applied even where the said guidelines are not applicable on literal interpretation thereof. The Court is informed by the learned Counsel on both sides as well as by the Official Liquidator that the respondent No. 1 charges transfer fee at the rate of Rs. 10/- per square metre. It is obvious from Guideline No. 2 (c)(v) of the said guidelines that even the transfer of leasehold rights in the plots leased by M.I.D.C. by a holding company in favour of its subsidiary or vice versa is liable to be considered as formal transfer within the meaning of the said transfer guidelines. It is stipulated by the said guidelines that the relationship of holding company and subsidiary company should continue to subsist between the transferor company and the transferee company for atleast minimum period of two years from the date of grant of permission for transfer. This is not a case of transfer of leasehold rights by the holding company in favour of the subsidiary company. Even if these guideline are to be applied by analogy in this case, it would follow that the applicant may be liable to pay standard transfer fee at the rate fixed by the Corporation and the relationship between the holding company and the subsidiary company as it exists on the date of grant of permission for transfer must continue at least for a period of two years. To oust the matter short, the applicants are ready and willing to abide by such conditions as the Court imposes on the applicants keeping the Principle of the said guidelines in mind. The applicants have adopted a reasonable attitude in the matter.


26.After taking an overall view of the matter, I pass the following order:

(i)The Official Liquidator is directed to execute the required Transfer Deed (or Deed of Assignment) in favour of Applicant No. 2 within four weeks from the date of receipt of ordinary copy of the order passed by this Court today duly authenticated by the Company Registrar. The applicants shall submit the draft of the necessary document of transfer to the Official Liquidator within two weeks from today;

(ii)The applicants shall pay the "Standard Transfer Fee" (not the amount of any premium) to Respondent No. 1 at the rate of Rs. 10/- per square metre i.e. Rs. 3,27,600/- by bank draft or bankers cheque alongwith the application for transfer of lease for the unexpired period of the lease executed in favour of the company under liquidation on 13th August, 1973. The respondent No. 1 shall thereafter execute a document of transfer of lease in favour of Applicant No. 2 for the unexpired period of the lease and get the same duly registered. The respondent No. 1 shall do so within four weeks of the receipt of the application for such transfer. The application for such transfer should be signed by both the applicants and should be accompanied by a letter from the Official Liquidator to the effect that all the conditions imposed by the Court on the applicants are duly complied with. The application for transfer of leaseh

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old rights in the said eight plots of land should also be accompanied by a true copy of the Deed of Transfer (Deed of Assignment) to be executed by the Official Liquidator as directed above. (iii)The Applicant No. 1 and 2 shall file a written undertaking in this Court duly supported by Board Resolution of both the companies to the effect that the relationship of holding company and subsidiary company between Applicant No. 1 and Applicant No. 2 shall not be altered in any manner whatsoever for a period of two years from the date of execution of transfer of lease in favour of the Applicant No. 2. The undertaking shall be filed expeditiously. (iv)The Applicant No. 1 shall furnish written guarantee in favour of the respondent No. 1 co-ordinating the performance of application of lessee by Applicant No. 2. A writing of guarantee in terms aforesaid shall be forwarded alongwith the application for transfer. It is hereby clarified that the said guarantee is not intended to be a guarantee for the entire period of unexpired lease. The said guarantee shall remain operative only for a period of two years from the date of transfer of the lease by Respondent No. 1. in favour of Applicant No. 2 in respect of the said eight plots of land referred to hereinabove. 27.The learned Counsel for the applicants makes a statement at the bar after taking instruction that further shares of Applicant No. 2 company are intended to be issued shortly, so as to bring the paid up capital of Applicant No. 2 company nearer to the authorised capital of the said company. This statement is made by the applicants to prove their bona-fides and to dispel the suspicion of Respondent No.1 that the Applicant No. 2 is likely to continue as a company with a small paid-up capital 28.It is hereby clarified that all the cost charges and expenses in respect of execution of the transfer deed (Deed of Assignment) as well as Transfer of lease by Respondent No. 1 in favour of the applicant No. 2 including in respect of stamp duty registration charges, if any shall be born by applicant No. 2. The applicant No. 1 gives a solemn assurance to this Court as a holding company of applicant No. 2 that all the obligations of applicant No. 2 shall be fulfilled within the time stipulated by the Court. 29.Having regard to the facts and circumstances of the case there shall be no order as to costs. 30.The Official Liquidator shall act on the basis of ordinary copy of this Order duly authenticated by the Associate of this Court. 31.Issue of certified copy is expedited.
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