N.V. Dabholkar, J.
1. All ten writ petitions, together with four surviving civil applications therein, are being considered together, for disposal. Common factor in all these matters, is Godavari Dudhna Sahakari Sakhar Karkhana Ltd. at and post office Dev Nandra, Taluka Pathri, District Parbhani (henceforth, referred to as "the sick factory"). The sick factory has come to grinding halt, so far as its business of production of sugar is concerned. After interim order of liquidation under Section 102 of the Maharashtra Cooperative Societies Act, 1960 ("MCS Act" for brevity's sake) dated 14.3.2002, finally, liquidation of the said sick factory, which is a specified cooperative society under Section 73-G of the MCS Act; is ordered on 15.5.2002. During the period the sick factory is under liquidation, there had been oscillation of decisions by the authorities under the MCS Act, regarding fate of the sick factory, whether to run it by granting lease or to effect sale of the same for satisfying its debts. This is because, the sick factory is heavily indebted to the Apex Bank of the Cooperative Sector in the State, i.e. The Maharashtra State Cooperative bank. ("MSC Bank" for brevity's sake).
2. The Petitioners in ten petitions and reliefs prayed by each of them can be grouped for convenient reference as under;
First Writ petition No. 1278 of 2004 is filed by MSC Bank, which claims to be a secured creditor quay the sick factory under liquidation. By the writ petition, as it stood before amendment to the pleadings on 6.7.2004, the MSC Bank prayed for a writ of prohibition against respondent Nos. 1 to 5 from transferring or dealing with the assets of the sick factory in any manner whatsoever to any third party, including respondent No. 6. (Respondent No. 6 henceforth, shall be referred to as "Ratnaprabha Sugars". It is the purchaser of the sick sugar factory at the auction held in January 2004). Respondent Nos. 1 to 3 in this writ petition, are the authorities under the MCS Act and Respondent Nos. 4 and 5 are the managing directors of the sick factory.
By amended pleadings, the MSC Bank also prayed that Respondent Nos. 1 to 3 and 5 may be directed to handover the entire assets of the sick factory under liquidation to the petitioner-MSC bank in pursuance of the notice dated 14.8.2003 issued by the Bank under Section 13(2) of the Securatization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002 (Henceforth, referred to as "the Securatization Act" for the sake of brevity.) By further amendment, granted on 28.11.2006, the MSC Bank challenges the decision of Respondent No. 1-State dated 4.10.2006, on subject No. 6 which relates to the said factory in liquidation. By this decision, a committee titled as "Mantri Samiti" i.e. "Ministers' Committee" has resolved to cancel the decision dated 10.2.2004, by which it was decided to accept the tender of Ratnaprabha Sugars. It was further decided that, action should be taken to allow the sick factory to be run on lease, after vacation of "status-quo" ordered by this Court. By this prayer inserted as a result of second amendment, the MSC Bank now opposes the decision of cancellation of sale in favour of Ratnaprabha Sugars and letting out of sick sugar factory to be run on lease. Further prohbition/injunction against possible leasing out of the sick factory by Respondent Nos. 1 to 5, is prayed for and directions are solicited to Respondent Nos. 1 to 5, that they should allow the MSC Bank to deal with the assets of the sick factory, as the secured creditor, in accordance with the law, presumably; the Securatization Act.
We may state here itself that this Court vide order dated 24.3.2004 in this writ petition, has ordered status-quo in following terms;
Parties to maintain status-quo in relation to the properties in question"
This order is confirmed after hearing parties when rule was issued by an order dated 29.7.2004.
By orders passed in Civil Application Nos. 2805 of 2005, 5420 of 2006 and 8848 of 2006, on 28.11.2006, this Court has allowed intervention by respective applicants. The applicants in these applications, are the members-shareholders, cane growers, workers/union and suppliers of other material.
In this writ petition, there are couple of civil applications as under, which are still surviving.
By civil application No. 10216 of 2006, the State and the authorities under the MCS Act, have prayed for vacation of interim order "status-quo" clamped by order dated 29.7.2004. This application can be disposed of simultaneously with disposal of the writ petition.
Another civil application No. 10091 of 2007, by the MSC Bank prays;
A. Grant this civil application and confirm the sale in favour of Respondent No. 5 Ratnaprabha Sugars Limited Parbhani, of the said Godavari Dudhna Sahakari Sakhar Karkhana Limited, Dev Nandra, Taluka Pathri, District Parbhani, in view of proposed consent terms and for that purpose, issue necessary orders.
B. Direct the sale proceeds of the properties of the assets of the Godavari Dudhna Sahakari Sakhar Karkhana Ltd. to be credited in the joint account of the authorized officer and liquidator and for that purpose, issue necessary orders.
By prayer Clause (C) MSC Bank has sought permission to withdraw the sale proceeds of the sugar, which are deposited by the liquidator in this Court, so that the bank can appropriate the said amount towards sugar pledge account of the sick factory with MSC Bank. By comparison of prayer Clauses (A) and (B) in civil application No. 10091 of 2007 with the prayer clauses in the main writ petition, it can be seen that, there has been sea-change in the policy and approach of the MSC Bank, probably because, recovery of dues is the paramount consideration.
3. Writ petition No. 330 of 2005 is filed by Parbhani Zilla Sakhar Kamgar Union, through its Secretary. Needless to say that the writ petition is filed for the purpose of safeguarding interest of the workers of the sick factory. By this petition, workers have challenged communication dated 24.12.2004 which is at Exhibit D in the said writ petition, by Commissioner (Sugar) addressed to the liquidators of, as many as six sugar factories. The communication informs that the MSC Bank has consented to the sale of assets of the said sugar factory and deposit of the sale proceeds in an independent account, to be disbursed in accordance with the decision of the court. At the same time, MSC Bank has requested that the sugar stock being pledged with the said bank, sale proceeds of sugar may be credited with it, in the pledge account. The communication directs the liquidators to deposit the sale proceeds of the sugar in the pledge account with the MSC Bank. The workers union seeks quashment of these directions. It further seeks directions to the liquidator-respondent No. 3 in the petition, to credit the sale proceeds those may be received as per the tender notice (Exh.E) into the account of the liquidator (and not with MSC Bank), so that those can be utilized towards satisfaction of unpaid salaries/dues of the workers, to the tune of Rs. 12,26,30,179/=. Exhibit E are the two notices dated 28.12.2004 and 6.1.2005 for effecting sale of sugar stock of 10,263.5 and 9,913.5 Metric tons. Directions are also sought to complete the liquidation proceedings as expeditiously as possible.
In this writ petition, this Court had granted ad-interim relief on 31.1.2005 and the said order seems to have continued still to be in force, as under;
By way of interim relief, we direct Respondent No. 3 liquidator to deposit in this Court the amount of sale proceeds of the sugar, if sold by public auction. Sale of sugar and consequential deposit of sale proceeds in this Court shall be subject to the result of this writ petition.
From Farad notings by office in this writ petition, it appears that the Respondents have deposited the amounts as follows, in this Court.
-------------------------------------------------------- Date of deposit Cheque/DD No. & date Amount -------------------------------------------------------- 14.10.2005 628389 11.10.2005 Rs. 90,00,000/-
14.10.2005 628390 11.10.2005 Rs. 90,00,000/-
14.10.2005 628391 11.10.2005 Rs. 24,34,500/- -----------------
Total Rs. 2,04,34,500/=
30.05.2006 624112 26.05.2006 Rs. 13,54,38,205 -----------------
In this writ petition, there is civil application No. 10182 of 2007, filed by MSC Bank, which is on the lines identical to civil application No. 10091 of 2007 filed in Writ Petition No. 1278 of 2004 i.e. prayer for confirmation of sale in favour of Ratnaprabhya Sugar, for directions to credit the sale proceeds of the assets in the joint account of authorized officer of the MSC bank and the liquidator and allowing the bank to withdraw the sale proceeds of the sugar which are deposited in this Court.
Another writ petition No. 5844 of 2007 is filed by the said workers''' union, seeking quashment of the decision of the Ministers' Committee in the meeting, dated 4.10.2006 (Exh.H), by which the decision to sell the property in favour of M/s Ratnaprabha Sugars is cancelled and it is decided that steps should be taken to run the sick factory on lease, after this Court vacates the order of status-quo.
4. Writ petition No. 6600 of 2005 is the second writ petition filed by MSC Bank and in this writ petition, respondent No. 7 to 11 who are impleaded in Writ Petition No. 1278 of 2004, are not parties. By this petition, Bank seeks directions to the liquidator and his officers and subordinates to deposit the entire amount of sale proceeds in the pledge account of the sick factory with the MSC Bank. Although in the prayer clause, sale proceeds are not specifically referred to as the sale proceeds of the sugar, in the entire petition, there is no reference to sale of movable and immovable assets of the sick factory and we, therefore, believe that the petition is limited to claim relief against sale proceeds of sugar stock with the sick factory. Writ petition is filed in the light of alleged agreement entered into between the MSC Bank and the Respondents.
5. Writ petition No. 6092 of 2006 is filed by eight members-shareholders of specified cooperative society, i.e. the sick factory. They have impleaded Union of India and National Bank for Agricultural and Rural Development (NABARD) as first two Respondents and sought directions as follows;
(i). directions to Respondent Nos. 1 to 5 to consider providing financial package for the sick sugar factory.
(ii). To quash and set aside the order dated 15.05.2002, regarding appointment of liquidator.
(iii). Quash and set aside the sale of sick factory in favour of Respondent No. 6 Ratnaprabha Sugars.
(iv). Prohibition against liquidator from transferring, alienating assets of the sick sugar factory in favour of Ratnaprabha Sugars, or any third party.
Writ Petition No. 6592 of 2006 is by 19 petitioners. They not only are the members of the said sugar factory, but are also sugar cane cultivators. They have come with a prayer as follows;
By writ of mandamus, directions or orders in the nature of mandamus, Respondents be directed to implement the consent terms dated 1.8.2006 for starting of the Godavari Dudhna Sahakari Sakhar Karkhana Limited, forthwith.
The consent terms are filed at Exh.H and it appears that, in the meeting, wherein there were representatives of the authorities of the cooperative department, MSC bank, Ratnaprabha Sugars, liquidator and also cane growers, it was agreed that the consent terms may be filed before this Court and after obtaining directions from this Court, sale proceeds should be accepted from Ratnaprabha sugars and the same should be deposited in the joint account of MSC bank and liquidator. In fact, agreement also contemplates deposit of sale proceeds of the sugar, also in the said joint account. petitioners, who are also members-shareholders of the sick factory under liquidation. They have prayed for directions to start the said sugar factory, by leasing out the same to any other running sugar factory or, to Vaidyanath Sahakari Sakhar Karkhana to whom it was leased out in the year 2002. Simultaneously, they pray for quashment of the decision of the liquidator to sell the assets of the sick factory, in favour of Ratnaprabha Sugar.
Writ Petition No. 5212 of 2007 is filed by couple of members of the said sugar factory, who are also agriculturists and thus cane growers. They have impleaded only authorities under the MCS Act, as respondents and pray for directions to Respondents to start sick sugar factory in the crushing season of 2007-08, commencing from 15.10.2007. They have also prayed for directions to grant financial package in favour of the sick factory.
Writ Petition No. 5221 of 2007 is by three petitioners who are sugar cane cultivators. They have sought directions to the State, Commissioner of Sugar and the Liquidator, to take necessary steps for leasing out sugar factory under liquidation and to commence production during crushing season of 2007-08.
6. Writ Petition No. 7907 of 2006 is a petition by Ratnaprabha Sugars Limited through its authorized representative. This petitioner is also a cooperative sugar industry and it was one of the bidders at the auction for sale of assets of the sick factory i.e. Godavari Dudhna Sahakari Sakhar Karkhana Limited. When tenders were opened on 7.1.2004, petitioner's bid of Rs. 22.75 crores was found to be the highest and which, the State Government was pleased to accept on 1.2.2004. From prayer Clauses A and B of petition, it is evident that the petitioner challenged decision dated 4.10.2006 (Exh.A) of the Ministers' Committee. By resolution on subject No. 6, the said Committee of Ministers decided to cancel the tender submitted by Ratnaprabha Sugars, although consent for acceptance of the same was given on 10.2.2004, thereby agreeing to the sale of sick sugar factory in favour of Ratnaprabha sugars. It is further resolved by the Committee that the steps should be taken to run the sugar factory under liquidation, on lease basis after High Court vacates "status-quo." During the course of his arguments, Advocate Shri P.R.Patil submitted that, there is a mistake in prayer Clause (A) which reads " decision dated 4.10.2006, Exh.A,page 16", which, in fact, should read "decision dated 1.8.2006, Exh. O, page 97". By amendment, prayer Clause (B) is added, thereby challenging tender notice issued by the Commissioner of Sugar, on 27.6.2007.
By Civil Application No. 5085 of 2007, in this writ petition, Ratnaprabha Sugars has prayed for stay to the execution, implementation and operation of tender notice dated 27.6.2007 in respect of sale/lease of the sick factory under liquidation. It appears that by the said notice the Commissioner (Sugar) had again called for sealed tenders for purchase, as well as to run on lease, of as many as seven factories, including Godavari Dudhna Sahakari Sakhar Karkhana. Ad-interim relief in terms of prayer Clause (A) of this civil application granted on 10.7.2007, has still continued to be in force.
7. Thus, it can be seen that there are two writ petitions by MSC Bank-the secured creditor of the said sick sugar factory under liquidation and the Apex Cooperative Bank has changed its policy and prayer with the passage of time which can be termed as "about turn "about turn" "about turn". MSC Bank, which was initially opposing the sale of the assets of the sick sugar factory, is now willing to support the sale so that its dues can be recovered. It is consistent in pleading that the sugar stock is hypothecated/pledged with the MSC bank and, therefore, the sale proceeds of the sugar must go to the pocket of the MSC bank.
The workers' union has filed two writ petitions and it is mainly concerned with the closure of the sick sugar factory and, therefore, non payment of dues of the workers. It requires no prophet to say that, at present, since the factory is not working, the workers are without work and salary for years together and suffering starvation. The workers' union, which was opposing the sale proceeds of sugar going to the pocket of MSC bank and sale proceeds of the assets going to an independent joint account of the authorised officer of the bank and the liquidator, by the time it filed second writ petition, is impliedly supporting sale of the assets of sick factory in favour of Ratnaprabha Sugars under the hope that, at least by that mode; some amount will be available to satisfy the dues of the workers.
Five writ petitions are by members-shareholders/cane cultivators. All of them desire that sick sugar factory should start work of sugar production, so that the sugar-cane crop standing in the lands would be harvested and utilized. Even these members have now reached the limit of their tolerance and capacity to suffer. Unless the sugar factory starts sugar production, the standing sugar-cane crop becomes a liability for them, causing further adverse impact on their life, by land being not available for cultivating any other crop, unless the standing sugar-cane crop is disposed of. They, therefore, desperately wish starting of crushing season by the sick sugar factory and continue to do so every year. However, some of the members opt for running of the sugar factory by grant of lease in favour of another financially sound cooperative sugar factory, whereas some of them are agreeable even to the sale of the sugar factory, provided the purchaser is willing to run the same at its existing location.
M/s Ratnaprabha Sugars, petitioner in writ petition No. 7907 of 2006, stands totally on different footing on its own. It is concerned with confirmation of auction of all the assets of the sick sugar factory, in its favour.
In view of interests of all the parties being of the above nature, as mutually agreed by all the Advocates, we have heard the arguments of seven learned Counsel representing respective categories. The counsel for interveners, whose applications for intervention, were allowed, were requested to join the categories of the petitioners to which the interveners belong and support the lawyers of those petitioners.
In view of such a course of action decided to be followed, we have disposed of civil application No. 7709 of 2006 by members/shareholders, Civil Application No. 6688 of 2007 by some of the workers, and C.A. Nos. 3132/2004 and 10220/2005 of Suppliers of some other material to sick sugar factory, without passing any specific orders on these civil applications. We have thus heard Advocates Sarvashree P.R.Patil for M/s Ratnaprabha Sugars-the auction purchaser, S.T.Shelke for workers' union and the workers, V.D. Salunke for members-shareholders-cane growers. Advocate Shri R.R.Chandak also advanced some submissions for the same category of petitioners, but who favour continuation of crushing season by leasing out the sick sugar factory under liquidation and, therefore, oppose the sale of the total assets of the factory. Advocate Shri R.N.Dhorde was heard on behalf of MSC Bank-the secured creditor and Shri N.B.Khandare, Govt.Pleader, on behalf of the State.
By our order dated 10.12.2007, we had decided to commence final hearing of all these writ petitions on 20.12.2007. By the said order and more particularly vide paragraph 13 thereof, we had specifically directed MSC bank, auction purchaser-Ratnaprabha Sugars and the State, to maintain status-quo, as on that date. It appears that on 13.12.2007, the Commissioner (Sugar), passed an order, substituting the liquidator (Collector Parbhani), by a Board of Liquidators consisting of five members. On 7.1.2008, Advocate Shri Parag Barde filed two civil applications on behalf of Board of Liquidators viz. civil application No. 207 of 2008 in writ petition No. 1278 of 2004 and 209 of 2008 in writ petition No. 7907 of 2006, bringing these developments to the notice of this Court and praying to be impleaded as co-respondents in respective writ petitions. On 13.2.2008, we had taken a note of this and the lawyers representing respective parties, including Senior Counsel Shri P.M.Shah, instructed by Advocate Shri P.V. Barde, for newly appointed Board of Liquidators, were directed to file synopsis of their arguments and thereafter observe time limit of 30 minutes each, when they would advance oral arguments. The matter was thus fixed for final hearing on 20.2.2008. Arguments were heard in the afternoon sessions of 20th, 21st, 22nd, 25th and 27th February 2008, thereafter on 3rd, 4th and 10th, 11th, 12th, 13th and 18th March 2008.
8. The factual matrix, as can be gathered from the synopsis submitted by respective counsel, as submitted during oral arguments and by reference to certain documents in the record of various writ petitions, can be stated as follows;
Godavari Dudhna Sahakari Sakhar Karkhana ("sick factory") was registered under the Maharashtra Cooperative Societies Act, 1960 ("MCS Act"), on 12.12.1975. It ran successfully from 1975 to 2000, having membership more than 10,000. It ran into rough weather between 2000 and 2002, because of drought condition and natural calamities and there was no crushing of sugar-cane and consequently, no production of sugar for two crushing seasons i.e. 2000-01 and 2001-02.
Maharashtra State Cooperative Bank ("MSC Bank") claims the sick factory to have executed a hypothecation deed in its favour on 29.7.1985, thereby hypothecating entire plant, machinery and other assets of the sick factory for an amount of Rs. 3.65 crores lent, advanced and paid by MSC bank to the sick factory, from time to time prior to execution of the hypothecation deed. A copy of this hypothecation deed is at Exhibit O-1 (paperbook pages 108 to 151 of WP 1278/2004). Property hypothecated is said to have been described in two schedules i.e Schedule I and Schedule II to the said hypothecation deed. On 14.11.1994, the bank sanctioned a term loan of Rs. 1.973 crores, on execution of documents and promissory note (paperbook page 177). The sick factory executed a mortgage deed on 27.2.1996, thereby mortgaging its entire property as per schedules (paperbook pages 213 to 355) in favour of the MSC bank towards loan obtained. This mortgage deed was registered on 10.6.2004 for an amount of Rs. 4.93 crores. On 30.11.1996, the Government has given guarantee to the loan obtained by the sick factory to an extent of Rs. 1.97 crores (paperbook pages 180 to 188). By another mortgage deed, dated 30.12.1998, the factory mortgaged its plant, machinery and building to MSC bank for further amount of Rs. 2.34 crores (This mortgage deed is registered only on 21.2.2008). Again on 27.6.2000, the Government provided a bank guarantee to the loan obtained by the sick factory, to the tune of Rs. 3.84 crores. On 9.1.2002, further loan of Rs. 18.15 crores was advanced to the sick factory. The factory executed a promissory note and also deed of pledge for Rs. 17.50 crores in favour of the bank, on 21.1.2002.
On 14.3.2002, the Commissioner of Sugar and Additional Registrar, Cooperative Societies, Pune, passed an interim order under Section 102 (1) of the MCS Act, directing liquidation of the sick factory and appointing the Collector, Parbhani, as liquidator of the factory. The factory was invited to file its say on or before 14.4.2002. It is said in the order that, during preceding four years, in spite of availability of sufficient sugar-cane, there had been no crushing to the fullest capacity of the sugar factory and the factory is indebted to financial institutions to the tune of Rs. 11.55 crores. There had been no sincere efforts to increase the area of sugar-cane cultivation. (paperbook page 70 to 72). Even after taking into consideration the say filed by the sick factory, contending that due to drought condition and natural calamities there was inadequate production of sugar-cane; that the dues towards the government were negligible; the machinery was in good condition; efforts were being made to improve sugar-cane cultivation and there was stock of 13,900 quintal sugar, 3700 metric tones molasses and 1,000 metric ton bagas, the Commissioner (Sugar) and the Additional Registrar, Cooperative Societies, was pleased to pass final order under Section 102 (2) of the MCS Act, thereby confirming the liquidation proceedings and appointment of the Collector, Parbhani, as liquidator, who was directed to proceed in accordance with Section 105 of the MCS Act. This order was passed on 15.5.2002 (paperbook pages 73 to 76).
Between May 2002 to October 2002, the MSC bank informed the sick factory, the Commissioner (Sugar) as also the Liquidator, about the amounts due from the sick factory to the MSC bank, and requested the liquidator to deposit all sale proceeds in the account of sick factory with MSC bank. In fact, the bank, by writ petition No. 56 of 2003, also challenged the communication dated 13.9.2002, by the Commissioner (Sugar) to the Liquidator, directing deposit of the sale proceeds of sugar in the liquidation account, and this Court had granted stay to the said letter, on 13.3.2003. We are informed by Advocate Shri R.N.Dhorde for the MSC Bank that, the said writ petition was ultimately withdrawn because, the Commissioner (Sugar) passed an order, directing the liquidator to deposit the sale proceeds of the sugar, in the pledge account with the MSC bank.
Learned Senior Counsel Shri P.M.Shah, instructed by Advocate Shri Parag Barde, representing newly appointed board of liquidators of the sick factory, has laid emphasis on couple of dates which need to be referred to, in the chronology of events. The Securatization Act came into force on 21.6.2002 and by notification dated 28.1.2003, issued under Section 2 (1) (c(v) of the said Act, the Central Government specified "cooperative banks" as defined in Clause (cci) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949) as "bank". (This was used as a foundation to advance a proposition that the provisions of the Securatization Act are not available to MSC bank). According to the Board of Liquidators, MSC bank, as a creditor, has lodged its claim with the liquidator, on 6.6.2002 and the liquidator has registered the same on 27.7.2002 and intimated the bank, accordingly.
In the year 2002, Vaidyanath Sahakari Sakhar Karkhana Limited, Pangri, started running the sick factory under liquidation, on lease for a period of five years. However, the lease was discontinued after two years and the sugar production in the said sick factory was again closed. Petitioners in WP 6092/2006, in the synopsis and oral arguments, submitted that the lease was terminated because of decision to sell the sick factory. However, in the synopsis to the petition, item (x), the reasons for termination of lease are narrated to be, "political reasons" and there is no material in the said writ petition to demonstrate that it was a conscientious decision to terminate the lease as a result of decision to sell the sick factory. On drawing attention of Advocate Shri Chandak, he orally submitted that, termination of lease, on sale of sugar factory, was a condition in the lease deed itself. Eventually, we do not have copy of lease in favour of Vaidyanath sugar factory for ready reference. Admittedly, Vaidyanath Sahakari Sakhar Karkhana did not continue sugar production under the lease, after two crushing seasons and, in fact, it continued sugar production only for 1-1/2 crushing season i.e. 2002-03 and 2003-04 (part).
In the meanwhile, on 14.8.2003, the MSC bank issued notice under Section 13(2) of the Securatization Act, to the liquidator of the sick factory, directing him to discharge, within sixty days, secured debts to the tune of Rs. 25.6481 crores. A copy of the said notice was also addressed to the Commissioner of Sugar.
On 8.12.2003, the Commissioner of Sugar published in newspaper having circulation all over the State, a notice inviting tenders for effecting sale of the assets of the said sick factory. The last date for filing tenders was 5.1.2004. The tenders were opened on 7.1.2004 and the bid of Ratnaprabha Sugars, offering price of Rs. 22.75 crores, was found to be the highest. On 10.2.2004, the State Government indicated its consent to accept the bid of Ratnaprabha Sugars, by a communication to the Commissioner of Sugar, by Under Secretary to the Government of Maharashtra, in the Department of Cooperation, Marketing and Cotton Industries. By communication dated 23.2.2004 (paperbook pages 51 and 52 in WP 7907/2006), the Collector, Parbhani, in his capacity as the liquidator of the sick factory, invited Ratnaprabha Sugars to deposit 25% of the bid amount, i.e. Rs. 5,68,75,000/= with him by a cheque in favour of the liquidator, within a period of seven days. This communication gave a reference to the said communication from the Government, consenting to accept the bid of Ratnaprabha Sugars for a price of Rs. 22.75 crores.
In the meanwhile, on 20.2.2004, MSC bank filed writ petition No. 1278 of 2004 in this Court and the court, on 24.2.2004, had ordered notice to Respondents. According to Ratnaprabha Sugars, communication dated 23.2.2004 by liquidator, inviting Ratnaprbaha Sugars to deposit 25% of the bid amount, was served upon it on 26.2.2004. On 3.3.2004, Ratnaprabha Sugars requested the Collector/liquidator, extension of time to deposit 25 % amount as desired by communication of 23.2.2004, in view of the fact that the MSC bank had filed writ petition No. 1278/2004 and hence, the matter was subjudice. A copy of this communication is filed along with written arguments. In fact, as many as 13 documents are filed along with written arguments. The request was turned down by the liquidator, on 11.3.2004. By communication dated 12.3.2004, Ratnaprabha Sugars renewed its request for time extension to deposit, which was responded by the Collector-Liquidator, vide communication dated 16.3.2004. By this communication, the liquidator informed Ratnaprabha Sugars, of forfeiture of earnest deposit of Rs. 10,00,000/=. In WP 1278 of 2004 filed by MSC Bank, this Court, on 24.3.2004, ordered status-quo in relation to properties in question and this order was confirmed on 29.7.2004 while issuing rule.
Petitioners in Writ Petition No. 6092/2006 are members/shareholders and sugar-cane growers. During the course of his arguments, Advocate Shri Chandak has given preference to running of the factory on lease basis as compared to selling it by auction either to Ratnaprabha Sugars or anybody. In fact, by the said writ petition, petitioners therein have prayed for directions to respondent Nos. 1 to 5 to consider providing financial package for sick sugar factory. Naturally a reference will have to be made to the events described in the said petition, which have importance from the point of view of prayers by those petitioners. It is said that during April to August 2004, the shareholders, farmers and employees submitted representations requesting Government of India to provide financial package for revival of the sick sugar factory. It is said that the Chief Minister of the State on 13.9.2004 wrote letters to the Prime Minister, the Minister for Agricultural and Finance Minister, requesting to grant revival package for the sick factory. On 15.9.2005, Ministry of Finance in the Government of India is said to have issued suitable instructions to Reserve Bank of India regarding financial package for revival of sick sugar factories. On 20.10.2005, Government nominated a Committee under the Chairmanship of Honourable Minister for Cooperation for the purpose of taking decisions about the future of sick sugar factories, regarding appointment of liquidator for the purpose of running those on the basis of lease, or running the same on lease without putting it under liquidation, putting the sugar factory for sale etc. It was decided that the said Committee, on the basis of study about material regarding the sick sugar factories, will take a decision and place the same before the Council of Ministers (Resolution dated 20.10.2005 at Paper Book pages 147 to 149 in Writ Petition No. 6092/2006).
On 30.6.2005, Government of Maharashtra approved the consent terms and informed accordingly to Commissioner of Sugar as also Executive Director, MSC Bank. By this approval of consent terms, the Government impliedly consented to the sale of sick sugar factory in favour of Ratnaprabha Sugars. On 7.7.2005, Commissioner of Sugar invited Ratnaprabha Sugars Ltd. to deposit bid amount so that it can take possession of the assets of the sick sugar factory. He also invited Ratnaprabha Sugars for discussion on 11.7.2005. This communication refers to status-quo ordered by this Court in the Writ Petition filed by MSC Bank and, therefore, about inability to complete the auction of sick sugar factory. It also refers to compromise arrived at between MSC Bank, liquidator and Government having approved the consent terms on 30.6.2005. On 30.8.2005, Commissioner of Sugar addressed a communication to Collector, Parbhani, who was also liquidator of the sick sugar factory and copy of the same to M/s Ratnaprabha Sugars. This communication specifically disapproves forfeiture of earnest deposit of Rs. 10,00,000/- of M/s Ratnaprabha Sugars, by the liquidator vide its communication dated 16.3.2004. It refers to compromise between MSC Bank and liquidator, which they desired to enter with the consent of the Court and State Government having approved the consent terms. Ultimately, it directs the Collector to observe filing of consent terms in the High Court by MSC Bank and the liquidator (In fact, it is tantamount to directions to Collector to file the consent terms because Collector, Parbhani was the liquidator) and to invite M/s Ratnaprabha Sugars to deposit 25% bid amount within seven days, upon decision of the Court on the consent terms. Only if the amount is not so deposited by Ratnaprabha Sugars, the consent accorded by the Government for sale in favour of Ratnaprabha Sugars would be cancelled. In its meeting dated 27.12.2005, MSC Bank passed a resolution to file the consent terms regarding sale of the sugar factory on condition that sale proceeds of sugar should be deposited in the Pledge Account with MSC Bank and sale proceeds of the sugar factory would be deposited in the joint names of authorised officers of the Bank under Securatisation Act and the liquidator. This communication addressed to Commissioner of Sugar also hints that reference will have to be made in the consent terms, regarding satisfaction of the dues of the workers from sale proceeds of the assets of the sick factory and thereafter the Union of the workers will have to be requested to withdraw the litigation filed by it after bringing it to the notice of the said Union, of incorporation of above clause in the consent terms. By communication dated 1.6.2006, Collector, Parbhani informed the Government that due to availability of sugar-cane it was possible to start crushing in that season. By letter dated 1.6.2006, Ratnaprabha Sugars informed the Collector that it was willing to deposit the balance amount quoted in the tender, by abiding the terms and conditions of the tender notice. It requested the Collector to file the consent terms before Aurangabad Bench of the High Court and obtain permission of Hon'ble High Court. It requested Collector to cooperate so as to enable M/s Ratnaprabha Sugars to start crushing in the ensuing crushing season. On 8.6.2006, Ratnaprabha Sugars also filed Civil Application No. 4917/2006 for directions to Collector to accept the remaining amount, which was ultimately withdrawn on 28.11.2006.
By communication dated 15.6.2006, MSC Bank informed the Commissioner of Sugar that nearly six months had expired since 24.1.2006 when Bank had informed its consent to sale of assets of sick sugar factory in favour of M/s Ratnaprabha Sugars. With the passage of the time, the Bank felt that the assets may fetch more price on fresh auction. The Bank has, therefore, communicated that it has taken a decision to cancel the consent communicated by letter dated 24.1.2006 and it has requested that liquidator should be asked to invite fresh tenders. It appears that, on 5.7.2006, MSC Bank also passed Resolution No. 14 to the effect of cancelling sale of sick factory in favour of Ratnaprabha Sugars and for inviting fresh tenders.
On 1.8.2006, a meeting was held at the chamber of Commissioner of Sugar, which was attended also by Shri D.B.Gavit, Joint Director (Administration), Director and Executive Director of MSC Bank, M.L.A. Shri Durani, Collector, Parbhani (who was liquidator) and Shri Raosaheb Jamkar, on behalf of Ratnaprabha Sugars. A unanimous decision was recorded that the MSC bank, liquidator and Ratnaprabha Sugars should file consent terms before this High Court and after the High Court passes appropriate orders on the consent terms, Ratnaprabha Sugars should issue demand draft in the name of the liquidator, for the purpose of purchasing assets of the sick sugar factory. It was also resolved that the sale proceeds of the assets of the sugar factory should be deposited in the joint account in the name of authorized officer of the bank and the liquidator. There is a reference that, M.L.A. Durani had taken the responsibility of withdrawal of the civil application. Accordingly, with communication dated 9.8.2006, M/s Ratnaprabha sugars, forwarded a demand draft in favour of official liquidator of the sick sugar factory, drawn on State Bank of India, Parbhani branch for Rs. 22.65 crores. By communication dated 18.8.2006, Executive Director of MSC Bank informed the Commissioner of Sugar about resolution passed by the Board of Directors of the Bank and the resolution desired the authorized officer of the bank and liquidator of sick sugar factory to file consent terms in the High Court; that the bank should get vacated the stay which it had obtained; simultaneously the liquidator should seek permission of the court to transfer sale proceeds of the sugar to the MSC bank; the expenditure incurred by the bank on the action under the Securatization Act should be paid to the bank from out of sale proceeds of the assets on priority basis; liquidator and authorized officer of the bank should determine the legal dues payable to the employees and a decision should be obtained from the court as to whether the remaining sale proceeds should be deposited in accordance with the Securatization Act, or the MCS Act and that the sale proceeds of the assets should be distributed in accordance with directions of the Court.
On 20.8.2006, Ratnaprabha Sugars filed civil application No. 7710 of 2006, seeking directions to the liquidator to accept the auction amount and transfer the assets in favour of Ratnaprabha Sugars (we have disposed of this civil application on 10.12.2007 without any orders, upon fixing all the writ petitions for final hearing). Apprehending transfer of assets in favour of Ratnaprabha Sugars, on 20.8.2006, some of the members of the sugar factory, filed writ petition No. 6092 of 2006, whereas some members have filed writ petition No. 6592 of 2006 on 11.9.2006, seeking directions to implement consent terms dated 1.8.2006.
On 4.10.2006, a Committee of Ministers, comprising of learned Ministers for Cooperation, Finance, State Minister for Cooperation, President, MSC Bank, Principal Secretary (Cooperation and marketing) and the Commissioner of Sugar as the Secretary, took a decision to withdraw consent dated 10.2.2004 to the sale of sugar factory in favour of M/s Ratnaprabha Sugars. It was resolved that, the tender should be cancelled and the action should be taken to lease the sick sugar factory, upon vacation of status-quo by the Court.
By tender notice dated 27.6.2007, the Commissioner of Sugar invited tenders for sale/lease of sick sugar factory, despite the fact of status-quo order being in force and, therefore, M/s Ratnaprabha Sugars filed civil application No. 5085 of 2007, on 3.7.2007 in Writ Petition No. 7907 of 2006 (which was already filed on 27.11.2006), praying for stay to the said tender notice in which this Court, on 10.7.2007, ordered ad-interim relief in terms of prayer Clause (A). This ad-interim relief had an effect of staying execution, implementation and operation of tender notice dated 27.6.2007. Interim relief was continued by orders dated 25.7.2007, 1.8.2007, 9.8.2007, 17.8.2007, 12.9.2007 and 23.11.2007.
On 7.9.2007, Union of workers filed writ petition No. 5844 of 2007, seeking quashment of the decision of the Ministers' Committee in the meeting dated 4.10.2006. On 29.9.2007, MSC bank passed resolution that it is willing to confirm the sale of sick sugar factory in favour of Ratnaprabha Sugars, as per the consent terms and filed civil application No. 10091 of 2007 on 22.11.2007, seeking relief to that effect.
On 10.12.2007, by mutual consent of lawyers of all the parties, it was decided to take up the writ petitions for final hearing on 20.12.2007. By paragraph 13 of the said order dated 10.12.2007, we had directed MSC bank, Ratnaprabha Sugars and State to maintain status-quo as on that date. In spite of such order, the Commissioner of Sugar, by order under Section 103(4) of the MCS Act, dated 13.12.2007, substituted the liquidator (Collector, Parbhani), by a board of liquidators, consisting of three M.L.As. Shri Suresh Dada Deshmukh, Babajani Durani and Smt. Faujia Tahsinkhan & Smt. Bhavana Nakhate and Prabhakar Shinde. This board of liquidators is said to have taken over charge from the substituted liquidator on 14.12.2007. Civil Application Nos. 207 and 209 of 2008 are filed in Writ Petition Nos. 1278 of 2004 and 7907 of 2006 respectively, through Advocate Shri P.V. Barde, for being added as Respondent in the writ petitions, and learned Senior Counsel Shri P.M.Shah, instructed by Shri P.V. Barde, has argued on behalf of the new board of liquidators/intervener-respondent.
9. Having recorded all the events, which are relevant for the purpose of adjudication of these writ petitions, now it is not necessary to consider pleadings in the writ petitions, word by word. The factual matrix described in paragraph 8 above, is not at all disputed by any of the parties. All the lawyers have submitted written notes of arguments and also advanced oral submissions. By considering written arguments and oral submissions of lawyer representing particular party, it would be sufficient for us to draw out what are the contentions of that party and what are the reliefs sought.
We also intend to avoid temptation of recording points urged, in details. At present, purpose of reproducing crux of the submissions advanced, is aimed at drawing out points for consideration, or issues of controversy. We intend not to refer to factual details, nor to case law relied upon by respective counsel for supporting his proposition, at this stage. The factual details and case law relied upon by the lawyers around one issue of controversy can be conveniently discussed, while recording reasons for the finding on the point for consideration and, therefore, at present reproduction of arguments advanced, may practically appear to be enlisting points to be urged. We are compelled to adopt such a course in order to restrict the length of the judgment to reasonable limits.
10. Advocate Shri P.R. Patil, representing auction purchaser-Ratnaprabha Sugars, advanced following points for consideration.
(1). The Committee of Ministers, which passed the order dated 4.10.2006 cancelling decision of acceptance of bid, has no powers to cancel the bids. It was pointed out that such powers are vested with Liquidator under Section 105 (1) (c) of the MCS Act.
(2). The decision to cancel the bid was adverse to the interest of M/s Ratnaprabha and, therefore, it ought to have been given an opportunity of being heard. The Ministers Committee, by not having accorded such an opportunity, has committed breach of principle of natural justice. Although administrative decision, that is liable for judicial scrutiny and in order to sustain, the decision must pass certain test, i.e. decision making authority having powers, must observe principles of natural justice and reasonableness of the decision.
(3). The impugned decision does not fulfil the test of reasonableness, as laid down in TataTataTata Cellular case (Wednsbery principle) and it is observed in breach.
(4). The decision to cancel the bid is tainted with malafides.
(5). The respondents (State and Liquidator) are estopped from cancelling the bid in favour of Ratnaprabha Sugars because, Ratnaprabha Sugars has changed its position, by incurring expenditure on the basis of decision dated 1.8.2006 to present the terms of compromise before the court.
It was also criticised by Advocate Shri Patil that the action dated 13.12.2007, to substitute sole liquidator, by a board of liquidators while status-quo ordered on 10.12.2007 was still in force, is illegal. Advocate Shri Patil has also replied points those are raised, or were likely to be raised by different parties, as follows. (Advocate Shri Patil was the first lawyer to commence the arguments).
(a). Writ Petition cannot be said to be unsustainable, merely because it is a contractual matter.
(b). The bid of Ratnaprabha Sugars cannot be said to have been cancelled on 16.3.2004, by communication from the Liquidator, forfeiting the earnest money deposit, because subsequent developments indicate that the acceptance of bid was still kept open.
(c). There is no suppression in not referring to the order of cancellation of bid, because the same was non-existent by virtue of order dated 1.8.2006, regarding acceptance of the bid. The earlier order had merged in the subsequent order.
(d). Issue whether MSC bank can exercise provisions of Securatization Act and provisions of which legislation (Securatization Act or MCS Act) shall prevail, in case of inconsistency, is settled by judicial pronouncements.
(e). decision of Board of liquidators to lease out sugar factory is neither reasonable nor practical.
(f). It is fallacious to argue that the sick sugar factory has sufficient funds so that, it can be run on lease or without lease. Taking into consideration liabilities already incurred towards MSC bank, workers and other dues, the funds available with sick sugar factory still fall short by about 18.00 crores.
(g). According to NABARD parameters, sick factory being mill, which does not have any operational surplus and it cannot repay its debts within fifteen years, is a unit commercially unviable and, therefore, is out of ambit of NABARD scheme and, therefore, is not likely to have financial package from NABARD for reconstruction.
(h). There is no concluded contract, is a proposition not sustainable in the light of decision dated 1.8.2006.
Advocate Shri Patil concluded his arguments, by praying for confirmation of sale in favour of his clients Ratnaprabha Sugars, by simultaneously offering that for the time list in these litigations, his client would be willing to pay Rs. 23.75 crores, in stead of bid amount of Rs. 22.75 crores. In response to our enquiry, Advocate Shri Patil indicated that his client would be willing to continue all the permanent workers of sick factory for running the same.
11. Advocate Shri R.N. Dhorde for MSC Bank claimed that the petitioner Bank is a secured creditor within the meaning of Securatization Act, as the sick sugar factory, by executing various deeds, such as, deeds of mortgage, pledge/hypothecation, guarantee and promissory notes, has charged the properties of the sick factory with the liability to satisfy the loans obtained by it from MSC bank, from time to time. According to Advocate Shri Dhorde, sugar produced is pledged with the MSC bank and the entire property, movable or immovable, is otherwise mortgaged or hypothecated with the bank.
Advocate Shri Dhorde pointed out awkward position that has occurred to the MSC bank. According to him the Collector, as a liquidator, has refused to deliver possession of the property to MSC bank, saying that it would require permission of the Registrar, as under Section 107 of the MCS Act. Thus, according to Advocate Shri Dhorde, the authority, which is supposed to hand over assets of the sick factory to the secured creditor under the Securatization Act, is not acting in accordance with the provisions of the said Act.
Once notice under Section 13 (2) of the Securatization Act is issued by MSC bank/secured creditor, no secured assets can be alienated or transferred without permission or consent of the bank, in view of Section 13(13) of the Securatization Act.
In view of Section 35 of the Securatization Act, the said Act has an effect overriding all other laws and hence, the bank has a right to take possession of all secured assets with the assistance of the statutory authorities. The Securatization Act, being Central legislation, would prevail over the MCS Act which is a State legislation. As a secured creditor under the Securatization Act, the petitioner-MSC Bank has priority over all other claimants.
By virtue of Section 47 of the Registration Act, time of registration is immaterial, because the document, on subsequent registration, will take effect from the time when it was executed and not from the date when it is registered. Even if the mortgage deed is dated 30.12.1998 and registered on 21.2.2008, is a valid legal security.
Probably, in view of agreement dated 1.8.2006, Advocate Shri Dhorde submitted that sale proceeds of the assets of the sick factory may be credited in the joint account of the liquidator and the authorized officer of the MSC bank, but still he maintained that sale proceeds must go to the pledge account of the sick factory with MSC bank. It was submitted that, sugar being pledged with bank, it has a right to proceed against sugar, as pledgee/pawnee. Although the Securatization Act has come into force on 21.6.2002 and the MSC bank is brought within the definition of `bank', by virtue of notification under Section 2(1)(c)(v) issued by Central Government on 28.1.2003, the provisions of Securatization Act are available to the bank, since the notice under Section 13 (2) is issued on 14.8.2003 and also in view of second proviso to Sub-section (9) of Section 13 of the Securatization Act.
According to Advocate Shri Dhorde, definition of `borrower' shall include liquidator.
According to Advocate Shri Dhorde, Section 13 of the Securatization Act prevents mortgaged goods being sold without consent of the secured creditor and, therefore, neither the sugar nor the assets of the sick sugar factory, which are all pledged/hypothecated with the bank, can be disposed of without consent of the bank, much less in a manner not consented by the bank.
Advocate Shri Dhorde has concluded his arguments, by narrating priorities of his client. According to him, entire assets, movable and immovable, sugar stock, of the sick factory, should be kept at the disposal of the bank for dealing with under Section 13 (4) of the Securatization Act. The bank has no objection to confirmation of the sale in favour of Ratnaprabha Sugars and put the net sale proceeds in the joint account of liquidator and the authorized officer of the bank, to be disbursed in accordance with law and sale proceeds of sugar must come to the pocket of the bank.
So far as workers are concerned, it was submitted that, they cannot claim priority over the claims of the bank. They must go to the liquidator to claim their dues and they would be entitled to ratable distribution from the sale proceeds of the assets of the sugar factory, but not from the sale of the sugar.
12. Learned Government Pleader Shri Khandare argued on behalf of the Government authorities. So far as Ratnaprabha Sugars is concerned, according to learned Government Pleader, since forfeiture of earnest money deposit (E.M.D.), by communication dated 16.3.2004 is not challenged by Ratnaprbha, the claim for confirmation of sale is not sustainable because, forfeiture terminates the contract. The decision dated 1.8.2006 was not a contract, having real finality. Observance of principles of natural justice while taking decision dated 4.10.2006, was not necessary as the contract was already terminated on 16.3.2004 by forfeiture of E.M.D. Learned Government Pleader insisted that in order to have any relief from this Court, Ratnaprabha Sugars should have some subsisting right, which it does not.
In reply to our query, regarding powers of the State (Ministers Committee) to interfere in the affairs of liquidation, learned Government Pleader has relied upon Section 79-A of the MCS Act, as the source of power.
It was submitted by learned Government Pleader that entry 43 in List I (Central list) of Schedule VII of the Constitution of India specifically excludes cooperative societies. Entry 32 in list I (State list), includes cooperative societies and, therefore, the winding up proceedings of sick factory shall be governed by the provisions of the MCS Act, which holds the field. Central Act cannot supersede the State Act which already holds the field and on the subject included in the State list and specifically excluded from the Central list.
Learned Government Pleader also pleaded that the Securatization Act and the MCS Act operate in different fields and there is no inconsistency and therefore, there is no question of Securitization Act having effect overriding the provisions of the MCS Act, in view of Article 254 of the Constitution. It was pointed out that overriding effect, if any, is allowed by Section 35 of the Securatization Act, is not general, as usual, beginning with non-obstante clause
"notwithstanding"notwithstanding"notwithstanding anything contained in any other law for the time being contained in any other law for the time being contained in any other law for the time being force...."
Learned Government Pleader did not fail to argue that the Securitization Act has come into force after appointment of the liquidator and, therefore, allowing the bank to proceed under the Securatization Act would be giving retrospective effect to the provisions of the said Act.
13. Learned Senior Counsel Shri P.M.Shah, instructed by Shri P.V. Barde, Advocate, for newly appointed board of liquidators, advanced his submissions in two parts. One for opposing the success of writ petition No. 1278 of 2004 filed by MSC bank and second, for opposing writ petition No. 7097 of 2006 filed by auction purchaser, seeking confirmation of auction in its favour.
So far as submissions as against the claim of MSC bank are concerned, following points were raised.
(i). Securatization Act is not applicable, since the same came into force on 21.6.2002 and cooperative societies, which include MSC bank, were brought under the definition `bank' by virtue of notification under Section 2(1)(c)(v) of the said Act dated 28.1.2003. The final order of appointment of liquidator was passed on 15.5.2002. Therefore, what is done prior to coming into force of the Securatization Act and prior to provisions of the new legislation being available to MSC bank, cannot be undone by the Securatization Act. This will be giving retrospective effect to the said legislation, in spite of the fact that the said Act is not applicable retrospectively.
(ii). The order regarding appointment of liquidator is a quasi-judicial order. Section 104 of the MCS Act, provides appeal against the order of winding up. The MSC bank has not challenged the order of winding up, or appointment of liquidator. On the contrary, it has lodged its claims as creditor with the liquidator on 6.6.2002 and, therefore, steps taken by MSC bank under Section 13(2) of the Securatization Act, are without jurisdiction, unless the order of appointment of liquidator is successfully challenged.
(iii). By virtue of Section 31 (a) (b) of the Securatization Act, provisions of the said Act do not apply to a lien/pledge of movables. The claim of MSC bank that the sale proceeds of the pledged sugar must go to the account of MSC bank is, therefore, not sustainable. It was also claimed that the entire claim by notice under Section 13(2) is against movables.
(iv). Hypothecation deed dated 30.12.1998 is registered only on 21.2.2008. By virtue of Section 59 of the Transfer of Properties Act, mortgages are required to be registered and in present case, since the mortgage deed was not registered on the date of notice under Section 13(2) of the Securatization Act (i.e. 14.8.2008), the mortgage deed cannot be said to be security interest under Section 2 (2) (f) of the Securatization Act. The notice, therefore, is illegal and ineffective.
(v). Notice under Section 13(2) of the Securatization Act is addressed to the liquidator, although section contemplates notice to the borrower. The notice to liquidator is, therefore, not a notice in the eye of law.
It was also submission that although Section 13 of the Securatization Act contemplates recovery of dues without intervention of the court, the bank has approached this Court for the purpose of recovery. So far as government approval dated 30.6.2005 to the consent terms is concerned, it is pleaded that the MSC bank and the liquidator were parties to the consent terms and Ratnaprabha Sugars was not a party. Approval accorded on 30.6.2005 was of the proposed settlement, but the consent terms were never acted upon. These consent terms were superseded by agreement dated 1.8.2006 and the MSC bank, by table VIII, is indicated to have desired deviation from the said settlement dated 1.8.2006. Therefore, the consent terms or agreement dated 1.8.2006 is said to have no relevance.
Regarding writ petition No. 7097 of 2006 filed by Ratnaprabha Sugars, the same is said to be not maintainable for the following reasons:
(i). Writ Petition seeks judicial review of the resolution dated 4.10.2006, but it does not categorically plead for specific performance of proceedings dated 7.1.2004 and 1.8.2006. There is only incidental reference to these proceedings. There is no pleading about readiness and willingness of the petitioner Ratnaprabha Sugars. The submission about `merger', therefore, cannot be allowed to develop during the course of arguments.
(ii). There is no concluded contract of sale in favour of Ratnaprabha Sugars, who was the only successful bidder and who has committed default in making payment of 25 percent of bid amount within seven days, as also balance 75 per cent in stipulated time. By claiming adjustment of E.M.D. of Rs. 10.00 lacs against bid amount of Rs. 22.75 crores, Ratnaprabha Sugars has indicated that it is not ready and willing to pay the amount of Rs. 10.00 lacs.
(iii). Action of forfeiture of E.M.D.is not challenged by Ratnaprabha Sugars. On the contrary, it has suppressed the same. Thus, Ratnaprabha Sugars is guilty of suppression of material fact.
(iv). Issue relates only to contractual relationship and, therefore, may not be entertained by this Court. Moreover, this Court is not bound to grant writ of mandamus in the nature of specific relief, merely because it is lawful to do so. (Section 20 of Specific Reliefs Act). Grant of specific performance with the value quoted in the year 2004, would be inequitable as the market value must have multiplied, by now.
(v). Settlement dated 1.8.2006 was contingent contract.
(vi). In view of Section 105 (1)(e) of the MCS Act, interest can be paid to the creditor only if there is surplus after prorata distribution. The rate of interest charged is also required to be determined by the Registrar.
Replying to certain points raised by Advocate Shri P.R.Patil for Ratnaprabha Sugars, learned Senior Counsel Shri P.M.Shah submitted that, as an initial contribution, while establishing sugar factory, comes substantially from the government funds, the government has deep and pervasive control in the administration and management of the sugar factory. Competence of government, therefore, to pass such resolution cannot be called in question. In fact, even the tenders were called in accordance with the instructions issued by the Government. There is no scope to read obligation to give hearing to Ratnaprabha Sugars before cancelling its tender, in the matters of contractual obligations.
14. In so far as the members-cane growers are concerned, arguments were advanced by two learned Counsel for two sets of the category.
Advocate Shri V.D. Salunke represents one set of members-cane growers. Shri Salunke made no secrets about desire of these members-cane growers that his clients are interested in two things. Firstly, they desire that the sick sugar factory starts crushing and production of sugar and secondly, it pays the cane growers, price of the sugar-cane supplied by them, punctually. His clients are not interested in who runs the sick factory and by what mode. However. Advocate Shri Salunke did not fail to point out that experiment of running sick sugar factory on lease has failed and it was further expressed that the board of liquidators does not contain any person who has any experience and competence to run the sick sugar factory which is in deep troubles in such a manner that, it cannot be brought back to a stage of running in profits.
Advocate Shri Salunke pointed out that the sick sugar factory was set up in the year 1971, practically by breaking all records, within eleven months. It was running in profits till 1985 under the chairmanship of the chief promoter and sugar-cane (about 6 lacs metric tons) within the radius of 15 kilometres of the factory, was being supplied by bullock-cart transport. Factory went into losses since appointment of the administrator in the year 2000 and since then it has continued in more and more losses.
Advocate Shri Salunke propounded that lease in favour of Vaidyanath was not cancelled by the Government, but lessee itself left on its own. In spite of package of 3.00 crores by State/Central Govt., in case of other factories running into losses in the year, none of those ran properly without packages during succeeding years. Shri Salunke drew our attention to the report dated 1.6.2006, by the liquidator to the Principal Secretary in the Department of Co-operation, a copy of which is available at paperbook pages 12 to 15 of writ petition No. 6592 of 2006. By this report, the liquidator has informed that there had been good rains in that year and there was assurance of regular irrigation through Jayakwadi canal. Consequently, there was substantial plantation of sugar-cane and likelihood of availability of about 5 to 6 lacs metric tons of sugar-cane. That the agriculturists and representatives have urged the liquidator to start crushing season, lest there will be agitation and that may create a problem of law and order situation. Even the workers are dependent upon functioning of the sick sugar factory. The liquidator, therefore, requested to take a decision at State level to start the sick sugar factory.
We do not intend to reproduce the details of written submissions, by Advocate Shri Salunke. Suffice it to say that, by taking into consideration expected sugar-cane crushing, the production of sugar, income from sale of sugar (90% free and 10% levy), liability to pay interest towards loans of the banks, excise duty, Advocate Shri Salunke has tried to demonstrate that the sick sugar factory, even if run on the basis of lease, or by the liquidator, it is not likely to run into profits,but likely to incur loss of more than Rs. 5.00 crores every year.Impliedly, this set of cane-growers supports the move of outright sale of the factory,but by ensuring that the sick sugar factory is run for the production and not for removal of the machinery elsewhere.
The written arguments by Advocate Shri Salunke, are concluded, by alleging that the appointment of the board of liquidators would cause more hardship, the same is done only to accommodate some political persons, at the costs of sugar-cane growers and members. Shri Suresh Deshmukh, the chairman of the board, is not even a member of the sick sugar factory.
Advocate Shri Chandak argued for another set of cane grower, who have filed writ petition No. 6092 of 2006 and prayed for directions to Union of India and NABARD, as also State Government, for providing a financial package to the sick sugar factory. This set of cane growers has prayed for quashment of appointment of liquidator, as also auction in favour of Ratnaprabha Sugars. During his oral submissions, Advocate Shri Chandak pointed out that the bid of Ratnaprabha Sugars is inadequate value for the property of the sick sugar factory, because the property includes land admeasuring 94.51 Hectares (226 acres, 11 gunthas). (Here itself, we may record that, the bid was accepted in January-February 2004. Even if we consider the price of the land at Rs. 1 lac per acre, the price of the land would be 2.26 crores and the bid of Ratnaprabha Sugars is for Rs. 22.75 crores). Advocate Shri Chandak urged that, since the bid of Ratnaprabha Sugars is already cancelled by the Government, liquidator ought to have called for fresh tenders. He submitted that, either the sick factory should be reconstructed by NABARD package, or fresh bids may be called.
In the written arguments, so far as writ petition No. 1278 of 2004 is concerned, by giving details of events right from February 2004 to November 2007, Advocate Shri Chandak criticised the MSC bank for frequently changing its stands and how it has taken conflicting stands. He has reiterated the submissions of learned Senior Counsel Shri P.M. Shah that the sick factory went into liquidation in May 2002, whereas the Securatization Act has come into force in the year 2003 and, therefore, the provisions of the Securatization Act are not available to the MSC bank.
So far as writ petition No. 7907 of 2006 filed by Ratnaprabha Sugars is concerned, it is pointed out that Ratnaprabha Sugars has already sold this factory to a third party and it is contended that, following circumstances confirm this rumour.
(i). Not a single rupee is deposited by Ratnaprabha Sugars, contending, in spite of being successful bidder, that in view of the fact that the matter is subjudice, it cannot deposit the amount.
(ii). Only in August 2006, Ratnaprabha Sugars showed willingness to deposit the amount in the court and, therefore, an inference can be drawn that after striking deal with Renuka Sugars, Ratnaprabha Sugars showed willingness to deposit.
(iii). All purchases of new machinery etc. of crores of rupees claimed by Ratnaprbha Sugars, are by Renuka Sugars and not by Ratnaprabha Sugars.
(iv). There is nothing in the writ petition to demonstrate that Renuka Sugars is the parent concern of Ratnaprabha Sugars. Since the compromise discussed in the meeting dated 1.8.2006 was not acted upon, it is not open for Ratnaprabha Sugars to claim that the order of forfeiture of E.M.D. merged into decision dated 1.8.2006. According to the written submissions, sale of the sick sugar factory at the same price, which was offered in the bid four years ago, is inequitable and under the garb of settlement/agreement, a private party is being benefited.
In the next part of written arguments, Advocate Shri Chandak has pointed out certain moves by the Government of Maharashtra to Union of India, seeking financial assistance for resurrection of sick sugar factory, report of revitalization of sugar industry of the committee constituted by the Government of India and subsequently constituted by Government of Maharashtra. It is impliedly tried to be argued that the decision of the Government of Maharashtra regarding sick sugar factory is a policy decision and, therefore, wisdom of the Government cannot be challenged. It is possible to revitalize the sick sugar factory, by providing financial package. (We may record here itself that in spite of specifically asking about it, neither the Assistant Solicitor General on behalf of the Central Government, nor learned Government Pleader on behalf of the State authorities, has expressed willingness to provide financial package for revival of the sick sugar factory).
It is submitted that the MSC bank can claim interest only upto the date of appointment of liquidator on 15.5.2002. Such a proposition is advanced, by relying upon Section 91 of the MCS Act. A small balance-sheet is given to indicate that the amount of Rs. 29 crores and odd is available at the disposal of the sick sugar factory against its total debt of nearly about 38 crores. According to Advocate Shri Chandak, the sick factory is thus in debt only to the tune of Rs. 9.00 crores as against other sick sugar factories which are indebted to the tune of Rs. 50 crores and odd and yet neither the MSC bank nor the State Government has taken any steps against those factories. According to Advocate Shri Chandak, sick sugar factory is covered under NABARD scheme in category "A" as it can earn Rs. 1.05 crores by leasing it out and can repay the remaining debts within few years. It is also pointed out that one Seven Star Distilleries is now ready to purchase the assets of the sick factory for Rs. 27.00 crores. Therefore, if the sale of sick sugar factory is the only option, in that case,fresh tenders may be called.
Lastly, it is contended that if the sale in favour of Ratnaprabha Sugars is allowed to be confirmed, the cooperative movement will get a set back by cooperative sugar factory going into the hands of private person.
15. Advocate Shri S.T.Shelke has advanced submissions on behalf of the workers Union and also the workers. In the written arguments, it is submitted that the MSC bank cannot claim any support from the Securatization Act which has come into force only on 21.6.2002 which is after the sick factory was put under liquidation. It is also submitted that merely by pledge, the pledged sugar stock does not become property of the bank. On the contrary, bank cannot claim any right over sugar stock which has been vested with the liquidator, with all other assets of the sick sugar factory. By virtue of Section 31-B of the Securatization Act, the provisions of the said Act do not apply to pledge of immovable properties and in view of Section 103 of the MCS Act, all properties of the sick factory are vested in the liquidator.
In the second part of the arguments, the details are provided as to how the workers are entitled to an amount of Rs. 12.00 crores and odd, from the sick sugar factory. By relying upon decision in writ petition No. 5639/03 (paperbook page 30 of writ petition No. 5844/07) and the decision of the Industrial Court in a batch of complaints (paperbook page 52 of writ petition No. 5844/07), it is claimed that both the courts have directed the liquidator to satisfy the dues of the workers from the amount that will be available on disposal of assets of the sick sugar factory. According to Shri Shelke, both these decisions have attained finality, as those are never challenged. Even the Government circular (paperbook page 25 of writ petition No. 5844/07), gives priority to the claims of the workers. Reliance is also placed on Section 13((9) proviso (ii) of the Securitizatiion Act, in order to propound that the Securatization Act also takes care of the dues of the workers, because the secured creditor is required to deposit the workmen's dues with the liquidator. By relying upon some reported judgments, it is contended that, the claims of the workers are the priority claims.
In the last part of written arguments, Union of workers has expressed its opposition to lease out the sick sugar factory again (writ petition No. 5844/07) as, such an experiment is already frustrated. The workers have, therefore, opposed the government's decision to lease out the sick sugar factory.
Oral arguments by Advocate Shri Shelke were practically on the same line as the written arguments, except for couple of points in addition. In his oral submissions, Advocate Shri Shelke has supported the contention raised by Advocate Shri P.R.Patil on behalf of Ratnaprabha Sugars that the conditions to be observed before leasing out the sick sugar factory, are not at all adhered to, by the Government. It was also pointed out that even to activate the machinery, which is lying idle for six years by now, it will require an amount of Rs. 11.00 crores. During last six years, nobody has taken cognizance of woes of the workers. Due to fluctuations in the government decision, even the liquidation proceedings could not be completed and, therefore, the workers are not paid any wages since 1996 except for the period during which Vaidyanath was running sick factory, on lease. In any case, by experiment, it is confirmed that this sick factory cannot be run on lease and, therefore, the workers have opposed government decision to lease out the sick sugar factory.
16. At the cost of repetition, reliefs prayed for by different petitioners in their respective petitions, and which are described in details in paragraphs 2 to 6 of this judgment, can be capsulized as under;
WRIT PETITION No. 1278/2004 (BY MSC BANK)
(1). Prohibition against transfer of assets of sick sugar factory.
(2). Transfer of assets only to MSC Bank.
(3). Challenge to decision of the State dated 4.10.2006, cancelling the auction in favour of Ratnaprabha and decision to lease out sugar factory upon vacation of status-quo and directions to Respondents to handover assets to MSC Bank.
WRIT PETITION No. 6600/2005 (BY MSC BANK)
(1). Seeking directions to liquidator to deposit sale proceeds of sugar in the pledge account with MSC bank. CIVIL APPLN. Nos. 10091/07 & 10182/07 (BY MSC BANK)
(1). To confirm sale in favour of Ratnaprabha Sugar and implement consent terms dated 1.8.2006.
(2). Sale proceeds of the assets of the sick sugar factory to be credited in a joint account of the authorised officer of the bank and the liquidator.
(3). Allow withdrawal of sale proceeds of sugar.
WRIT PETITION No. 330/2005 (BY WORKERS UNION)
(1). Challenge to communication dated 24.12.2004, by Commissioner of Sugar to liquidator, directing to transfer sale proceeds of sugar to MSC bank.
WRIT PETITION No. 5844/2007 (BY WORKERS UNION)
(1). Seeking quashment of decision dated 4.10.2006. * WRIT PETITION No. 6092/2006 (BY MEMBERS)
(1). For financial packages for revival.
(2). To quash the appointment order of the liquidator (dated 15.5.2002).
(3). Set aside the sale in favour of Ratnaprabha.
(4). Prohibit the transfer of assets to Ratnaprabha Sugars.
WRIT PETITION No. 6592/06(BY MEMBERS-CANEGROWERS)
(1). Respondents be directed to implement consent terms and deposit sale proceeds in the joint account of the authorised officer of the MSC bank and liquidator.
WRIT PETITION No. 6955/2006 (BY MEMBERS)
(1). Directions to quash the decision to sell.
(2). To start the sugar factory on lease.
WRIT PETITION No. 5212/2007 (BY TWO MEMBERS)
(1). To start the sugar factory.
(2). For financial package.
WRIT PETITION No. 5221/2007 (BY THREE MEMBERS)
(1). To start sugar factory on lease.
WRIT PETITION No. 7907/2006 (BY RATNAPRABHA)
(1). For implementation of decision dated 1.8.2006 (consent terms).
(2). For cancellation of decision dated 4.10.2006.
(3). Challenge to fresh tender notice dated 27.6.2007.
CIVIL APPLN. No. 5085/07 IN W.P. No. 7907/06
(1). Stay to execution, implementation and operation of the tender notice dated 27.6.2007.
Taking into consideration the reliefs prayed for, by various petitioners, arguments advanced in support of such claims on behalf of Petitioners and by Advocates of the Respondents for the purpose of opposing those, following points arise for our consideration.
(1). Whether the decision dated 04.10.2006by State is bad in law because:
(a)committee was not competent to take such a decision.
(b)principles of natural justice were not followed.
(c)the same is unreasonable.
(e)State/liquidator are estopped from cancelling bid of Ratnaprabha.
(2). Whether the decisiondated 16.3.2004forfeitingthe EMD of Ratnaprabha Sugars stands cancelled due to the subsequent developments/merged intosubsequent decisions?
Yes, it is waived by Liquidator and State.
Whether forfeiture of the EMD has brought an end to the contract, if any,between Ratnaprabha Sugars and the liquidator ?
(3). Whether sick sugar factory is eligible/entitledto financial package for revival, either from NABARD or State/Union ?
(4). Whether the provisions of Securatization Act are available to the MSC Bank, or such use of the provisions of the saidAct, by MSC bank would amount to giving retrospective effect to the said provisions ?
Yes.It does not amount giving retrospective effect.
(5). Whether, the MSC bank is a "securedcreditor" within the purview of the Securatization Act quay sick sugar factory ?
(6).Whether 'liquidator'would be covered by the definitionof "borrower" as contained in Section 2(1)(f)of the Securatization Act ?
(7). Whether alienation/transfer of "securedassets"without consent of the "Secured Creditor" MSC bank, is barred by Section 13 (13)of the SecuritizationAct ?
(8). Whether MSC bank has a right to recover saleproceeds of pledged sugar stock (aspawnee), to the exclusionof other creditors of the sicksugar factory ?
MSC bank as secured creditor shall have preference over unsecured creditors
Whether the provisions of the SecuritizationAct can not be enforced by the MSC bank against the movables i.e.pledged sugar ?
(9). Whether the Securatization Act has an effect overriding the provisions of the MCS Act ?
(10). Whether Writ Petition by MSC bank is not maintainable without successfullychallenging appointment of the liquidator ?
No. WP is maintainable.
(11). Whether the MSC bank is entitledto interestfrom the date of appointment of the liquidator (15.5.2002),only at the rate that may be determined by liquidator ?
(12). Whether the claims of the workers are priorityclaims and the "securedcreditor" is obliged to deposit the amounts towards dues of the workers,with the liquidator?
(13). Whether the conditions to be observed prior to leasingout the sicksugar factory, are not fulfilledand therefore, 'lease'is not an option available ?
(14). Whether the writ petition filedby Ratnaprabha Sugars is not maintainable because:
(a). it has failedto demonstrate ]
"readiness and willingness" to ]
perform itspart of the contract? ]
No. WP is maintainable
(b). it is based on contractual ]
relationship for which alternate ]
remedy is available ? ]
17. In writ petition No. 7907/2006, prayer cause (A) reads as follows;
(A). By a writ of mandamus, orders or directions in the nature of mandamus, Respondent No. 4-Liquidator, Godavari Dudhna Sahakari Sakhar Karkhana, Ltd. be directed to accept the remaining tender amount as per decision dated 4.10.2006, Exh. A, page 16 of the petition, to execute the title deeds in favour of the petitioner and hand over possession of concerned property of Godavari Dudhna Sahakari Sakhar Karkhana Ltd., District Parbhani, to the petitioner.
At the conclusion of his arguments, Advocate Shri Patil has prayed for amendment in this prayer clause, by deletion of clause "decision dated 4.10.2006, Exh. A, page 16" and substitution of the same by, "the decision dated 1.8.2006, Exh. O, page 97". Learned Senior Counsel Shri P.M. Shah has taken strong exception to the same. However, on reference to Exhibit A and Exhibit O of Writ Petition No. 7907/2006, it is evident that Exhibit A is a decision dated 4.10.2006 and the decision regarding subject factory is resolution No. 6. On reading text, it is evident that, this a decision to cancel the tender of Ratnaprabha Sugars/writ petitioner and giving the factory on lease. On reference to pages 97-98 of the petition, it is evident that, those are the minutes of the meeting held on 1.8.2006, wherein a decision was taken that the terms of compromise should be filed in the court by MSC bank, liquidator, workers' union and Ratnaprabha Sugars. There is further decision that, thereafter Ratnaprabha Sugars should issue Demand Draft of the bid amount in favour of the liquidator. Eventually, language of prayer Clause (A) sought to be amended, is quite elaborate and it is evident, when we take into consideration the text of the decisions dated 4.10.2006 and 1.8.2006, that the clause sought to be deleted is an error, may be clerical or inadvertent error. If, by decision dated 4.10.2006 Ratnaprabaha Sugars is not directed to deposit the bid amount with the liquidator by a Demand Draft, reference to the said decision in prayer Clause (A) is obviously erroneous. We are, therefore, inclined to allow the amendment, the same being correction of clerical/typographical error, or inadvertent error. The language of other contents of prayer Clause (A) is clearly referable to the decision dated 1.8.2006, which is prayed to be got complied by the Respondents. Oral application for amendment is, therefore, allowed.
18. Point No. 3. No. 3. No. 3. Whether sick sugar factory is eligible/entitled to financial package for revival, either from NABARD or State / Union ?
One set of the writ petitioners is that of the members and/or cane-growers who are petitioners in Writ Petition Nos. 6092, 6592, 6955 of 2006, 5212 and 5221 of 2007. However, there is no unanimity of desire between these members, as can be seen by comparison of prayers in these writ petitions. Petitioners in Writ Petition No. 6092/2006 have not only opposed the sale of the sick sugar factory in favour of Ratnaprabha Sugars, but they have prayed for starting of the sugar factory on lease and they have also prayed for directions to the Respondents for providing financial package. At the conclusion of arguments, we had specifically enquired learned Assistant Solicitor General Shri Alok Sharma for Union and learned Government Pleader Shri N.B. Khandare for the State, and both of them had expressed in the negative about any possibility of financial package in favour of the sick sugar factory in the immediate future. It was specifically submitted by learned Assistant Solicitor General that, if at all, any financial package for restructuring of the sick factory is to come, that would come from NABARD. On reference to writ petition Nos. 6092 of 2006 and 5212 of 2007, which specifically pray for financial package, it is evident that in writ petition No. 6092 of 2006, National Bank for Agriculture and Rural Development (NABARD), through its chair person is recited as Respondent No. 2 and as can be seen from the record, Respondent No-2 NABARD was unserved.
Advocate Shri Chandak in his written arguments, has provided the details of the efforts taken for securing financial package for restructuring of the sick sugar factory, since 2004. In April, July and August 2004, representations were made by shareholders, employees, farmers, by calling upon Government of India to cancel appointment of the liquidator and provide financial package for the sick sugar factory. It is said that even the Chief Minister of Maharashtra wrote to the Prime Minister, Union Minister for Agriculture and also Union Finance Minister, for grant of revival package to the sick sugar factories in the State and the Hon'ble Finance Minister Mr. P.Chidambaram in his budget speech for the year 2005-2006 is said to have announced appointment of a committee of NABARD to prepare package for sugar industry. It is said that the Ministry of Finance in the Government of India, has also issued instructions to Reserve Bank of India, in this respect. These are all events of the year 2004 to 2006 and even in the year 2008, learned Counsel was unable to place anything on record, which would indicate possibility of financial package for revival of sugar industry in general and sick sugar factory in particular, coming through in near future.
On the contrary, Advocate Shri P.R.Patil for Ratnaprabha Sugars, along with his written arguments, has produced literature regarding scheme for revival, by NABARD and submitted that the sick sugar factories are categorized under the said scheme and unfortunately, the subject sugar factory falls in the category which is not entitled to revival package from NABARD. In the file containing written arguments and some additional documents submitted by Advocate Shri Patil, at its page 83, is a document titled "NABARD NEWS LETTER, Vol.15, March 2005, No. 12". It begins with article titled as "Budget " 2005-06, extracts of speeches by the Finance Minister". The relevant portion relied upon by Advocate Shri Patil is in the second issue of "NABARD NEWS LETTER, Vol. 16, July 2005, No. 4", which is at running pages 87 to 90. The literature appears to have been downloaded from the website of NABARD, at www.nabard.org. This volume 16 at NABARD News Letter, at its internal page 3 (running page 89 of the file), contains an article titled as "Restructuring of loans to sugar factories" and the factories are categorized in three categories as follows.
Category I Mills which have operational surplus to repay their dues, including bank dues, within the stipulated time.
Category II Mills which do not have operational surplus to repay the debts within the existing repayment period, but can repay the debt, if repayment period is extended upto 15 years with two years moratorium on payment of interest and repayment of principal.
Category III Mills which do not have any operational surplus, or mills which cannot repay debts within 15 years.
Further portion of the literature indicates that the mills in category I will be provided need based reschedulement of loans for a period not exceeding five years. Mills in category II will be allowed reschedulement of loans for maximum period of 15 years with two years moratorium on payment of interest and repayment of principal. Mills in category III are said to be commercially unviable and, therefore, out of ambit of the scheme. The literature indicates that Union Finance Minister proposed package for revitalization of sugar industry while preparing budget for 2005-06 and according to the announcement, sugar factories, which were operational in 2002-03 sugar season, were to be assisted to restructure their dues to financial institutions and banks, on the basis of commercial viability. NABARD was asked to work out the scheme for such package. A committee was set up by NABARD to prepare financial package for sugar industry, under the chairmanship of Smt.Ranjana kumar. The committee had representatives from the Government of India, Reserve Bank of India, State Govt., I.B.A., Banks and Financial Institutions. The committee had classified sugar factories into three categories as above, on the basis of commercial viability, provided, the sugar mills were operational during the seasons 2002-03.The subject factory did not have crushing on its own strength since 2000. Can it be termed to be "operational in 2002-03" when Vaidyanath Sahakari Sakhar Karkhana ran it on lease for 1-1/2 years ?
It was contended by Advocate Shri P.R.Patil that the sick sugar factory would fall in category III and, therefore, would not be entitled to any financial package for restructuring. As against this, it was the contention of Advocate Shri Chandak that the sick sugar factory would fall in category II, if not in category I. Advocate Shri Chandak, along with his written arguments, has given a small balance-sheet of total debts of the sick factory and amount available at its disposal. The dues payable by the factory are stated to be Rs. 37.89 crores and odd, whereas the amount available at the disposal is shown to be Rs. 29.4 crores and odd. Amount available, includes Rs. 15.58 crores of sale proceeds of the sugar plus Rs. 1.50 crores as interest, accrued on the same. Rs. 3.00 crores is taken as the amount that will be received by the sick factory as lease premium, if the factory is run on lease. An amount of Rs. 8.95 crores is said to be recoverable by the karkhana. According to Advocate Shri Chandak, balance debt of Rs. 8.85 crores can be scheduled to be repaid within next fifteen years.
This argument stands countered by the statistics provided by Advocate Shri Dhorde for the bank, as also Advocate Shri V.D. Salunke for other set of members/ cane-growers. According to Advocate Shri Dhorde, dues of the MSC bank, as on 31.12.2007, are about Rs. 40.87 crores. According to Advocate Shri Salunke dues of the bank, as on 31.3.2000, were Rs. 20.67 crores. To his written submissions, Advocate Shri Salunke has annexed, extracts from the annual reports for the years 1993-94 to 1999-2000 and pointed out that during these years, total losses accrued are to the tune of Rs. 21.12 crores. According to Advocate Shri Salunke, even if the factory runs to its fullest strength, income from sugar sale will be Rs. 20.75 crores and interest of the bank on Rs. 22.65 crores, at 14.5% p.a. is Rs. 3.71 crores. Even if we calculate interest at contractual rate of 14.5%, only for two years i.e.1.4.2000 to 31.3.2002 and at the rate of 6 per cent from the date of appointment of the liquidator (15.5.2002 to 15.5.2008), the amount of interest that accrues on Rs. 22.65 crores is Rs. 14.71 crores and thus, the dues payable by the sick factory, as on today (taking into consideration the lowest possible amount), would be Rs. 37.36 crores. In the calculations by Advocate Shri Chandak, amount of Rs. 9 crores is shown to be receivable by karkhana and this amount cannot be said to be readily available. Thus, as on today, if available amount is utilized for satisfying the dues, still karkhana will be short of amount of about Rs. 16.00 crores. In the calculations of Mr. Chandak, he has not shown any dues payable by karkhana towards salaries and allowances of the employees, which according to Advocate Shri Shelke for the Union of the employees and for employees; are to the tune of Rs. 12.26 crores. Thus, total amount that will remain due from karkhana, even after available amount being spent towards satisfaction of existing dues, would calculate to Rs. 28.26 crores. If the dues of the workers are to be paid on priority basis, so that they can be persuaded to continue to work, amount of Rs. 12.26 crores will remain due from the factory towards its creditors and, therefore, interest payable on entire amount of Rs. 28.26 crores will have to be taken into consideration, which calculates 1.68 crores, even at 6 per cent per annum. As a normal business practice, the creditors will be crediting the amount initially towards interest and the balance towards the principal. Even if the sick factory is run on lease in future and entire lease premium of Rs. 3.00 crores per annum is said to be available for satisfaction of debt and interest, that will be sufficient to satisfy only amount of Rs. 1.32 crores per annum (Rs.1.68 crores being towards interest on Rs. 28.26 crores of principal) and hence, in next fifteen years the sick factory, if run on lease, will be in a position to satisfy the debts (principal) to the tune of Rs. 19.80 crores. If principal amount of Rs. 28.26 crores is to be paid in fifteen equal instalments, the factory needs to repay Rs. 1.88 crores per annum and thus, accepting the figures provided by the lawyers to be correct, there does not appear possibility that the factory can repay the outstanding dues and debts within 15 years. And it must not be lost sight of, that we have calculated interest payable, only at 6 per cent per annum as against the contractual rate of interest by MSC bank, at 14.50 per cent per annum and we have assumed that the entire lease premium of Rs. 3.00 crores will be available at the disposal of the sugar factory for satisfaction of its dues. We have also not taken into consideration, the contention of Advocate Shri Shelke for workers union, regarding requirement of Rs. 11.00 crores for activating the machinery of the sick factory, which is lying idle since January 2004.
We feel that the calculations above, are sufficient to indicate that even taking the dues payable and interest chargeable on the lower side, sick sugar factory does not seem to be in a position to satisfy the dues within next fifteen years.
The fact remains that these members have not brought on record, any details of efforts on their part to persuade NABARD and possibility of NABARD making available some financial package to the sick sugar factory. Merely because some factories are having more debts than the subject factory and are still being run on lease, that is no ground to believe that running the sick sugar factory on lease is financially viable and restructuring to be possible.
In fact, immediate requirement can be shown in brief, as follows;
-------------------------------------------------------- Dues of MSC bank as on 31.3.2000 : Rs.22.65 crores Interest from 1.4.2000 to 15.5.2008 ' : Rs.14.71 crores (calculated at 6 per cent p.a.since
the date of appointment of the
Salaries and allowances of workers Rs.12.26 crores ----------------------
Total Rs.49.62 crores
Add: Requirement for revitalization + Rs.11.00 crores ----------------------
Total Rs.60.62 crores
Thus, immediate need, if the factory is to start on lease, would be of making arrangement of Rs. 60.00 crores and not Rs. 39.00 crores as calculated by Advocate Shri Chandak.
For the sake of arguments, if the factory is sold, Advocate Shri Patil for Ratnaprabha Sugars has offered to pay Rs. 23.75 crores (although bid is of Rs. 22.75 crores) and if the amount of Rs. 15.58 crores deposited in this Court, of the sale proceeds of sugar plus interest of about 1.50 crores on the same is considered, the total amount of Rs. 40.83 crores would be readily available and if the factory is sold, expenses of Rs. 11.00 crores for revitalizing the machinery would not be necessary.
A sentimental appeal was also advanced by Advocate Shri Chandak that in case sale is confirmed and revival package is not granted, one factory from cooperative sector would go to private sector. In this context, it must be taken into account that even the committee appointed by the government to take a decision on the future of sick sugar factories, had decided to sell the sick factories and had, accordingly, issued tender notices. On reference to Section 105 (1)(c) of the MCS Act, the same reads thus;
105. Powers of the Liquidator.
(1) The Liquidator appointed under Section 103 shall have power, subject to the rules and the general supervision, control and directions of the Registrar:
(c) to sell immovable and movable property and actionable claims of the society by public auction or private contract, with power to transfer the whole or part thereof to any person or body corporate, or sell the same in parcels:
Thus, although such conversion of cooperative sick sugar factory into private factory may be sentimentally painful, can be said to be recognized by MCS Act itself.
Point No. 3 will, therefore, have to be and is accordingly, answered in the negative.
19. Point No. 13. No. 13. No. 13. Whether the conditions to be observed prior to leasing out the sick sugar factory, are not fulfilled and therefore, `lease' is not an option available ?
Such a proposition is propounded not only by learned Counsel for the auction purchaser, but it was also supported by Advocate Shri S.T.Shelke for the workers. Both of them have referred to a document at pages 137 to 142 of the paperbook of writ petition No. 7907/2006. In fact, in order to consider this argument, we are going to refer to two documents which are at Exhibits R-1 and R-2 to the affidavit filed by Shri Bharat Shantikumar Nagarnaik, Joint Director (Sugar), Aurangabad, on behalf of Respondent Nos. 1 to 3, in writ petition No. 7907/2006. Exhibit R-1 (pages 135-136) is a Government Resolution dated 20.10.2005. The introductory paragraph of the said Government Resolution states that the issue of considering sick sugar factories to be run on the basis of lease, was under consideration and in the cabinet meeting held on Wednesday, 6th September 2005 at 11.00 a.m., it was resolved to constitute a committee. The resolution indicates constitution of committee having 13 members, headed by Minister (Co-operation) and of which the Commissioner (Sugar) is a Member Secretary. Minister for Finance and Planning is the Joint President. Ministers for Departments of Rural Development and Tourism, Water Conservation, Industry, Marketing, Agriculture, are the members. State Minister for Cooperation, Secretary, Finance and Secretary, Cooperation, are also the members. The remaining two members are the President of MSC bank and President, Maharashtra State Cooperative Sugar Factories Federation. The resolution states that the Member Secretary will convene meetings of the Committee and the Committee shall decide the policy regarding giving sick sugar factories to be run on lease. The committee is expected to study the details of the sick factories and submit a report before the Cabinet. The second document is said to be Purakpatra (Supplement). In the matters referred at the top, earlier resolution dated 20.10.2005 is at serial No. 2. One more Government Resolution dated 23.11.2005 is also referred at serial No. 3 and at serial No. 1, there is a communication by the Commissioner (Sugar) dated 5.7.2005. The contents indicate that parameters to be applied, while considering the sick sugar factories to be given on lease, are contained in annexure A to this supplementary letter.
Advocate Shri Shelke has referred to parameter No. 11, whereas Advocates Sarvashree Dhorde and P.R. Patil have referred to parameter No. 12, in these conditions to be observed while giving sick sugar factory on lease. According to parameter No. 11, for giving a sugar factory on lease, written consent of the recognized union of workers is necessary. It is also necessary that workers, to whom Wage Board is applicable should show willingness to accept 50% reduction in dearness allowance and if Wage Board is not applicable, they should accept 25% curtailment of dearness allowance. Why consent of recognized union of workers is necessary is obvious. Lease is to be used as a tool for revival of sick sugar factory, by pulling it out of trouble of debt and for the purpose, even the workers are required to sacrifice their 25 % or 50% dearness allowance. Hence, condition of written consent of recognized union of workers must be treated as a mandatory requirement. When Advocate Shri Shelke argues that this condition is not fulfilled, argument must be taken as workers' union has not given written consent.
Condition No. 12 requires consent of financial institutions. This condition has three sub-clauses. The first sub-clause applies to the factories, which are likely to be leased out before placing them under liquidation. In that case, approval by all financial institutions, which are secured creditors, is necessary before issuing tender notice. Subject factory is already under liquidation and, therefore, this part may not be applicable to it. By second clause, it is said that once the factories are put under liquidation, law does not require approval of financial institutions. However, in case the financial institutions have taken steps under Securatization Act, consent of such financial institutions is necessary. In the matter at hands, the MSC bank has issued notice under Section 13 (2) of the Securatization Act to the liquidator, on 14.8.2003 and, therefore, any attempt to lease out the sugar factory will necessitate consent of MSC bank, before issuance of notice inviting tenders for running the sick sugar factory on lease. Whether the notice under Securatization Act can be issued to the liquidator and whether the provisions of the said Act are available to MSC bank, are the issues controverted by learned Counsel for the liquidators. However, if the provisions of the Securatization Act are available to MSC bank, then the consent of the said bank would be necessary before giving sick sugar factory to be run on lease. Even otherwise, the issue will have to be answered in the affirmative, because neither the State nor the liquidator claim that they have written consent of recognized union of the workers, with willingness of workers to curtailment of their dearness allowance.
Issue No. 13 is, therefore, answered in the affirmative. Option to lease, at present; is not available.
20. We find some additional material in this government resolution, which needs reference as those details can be taken into consideration for present adjudication. It appears that by Clauses 3, 4 and 5, the Committee has also fixed annual rent for sick factories to be leased out. Three clauses are pertaining to three zones of the State and for Marathwada Region, minimum rent fixed is Rs. 1.5 crores for a factory with 1250 TCD capacity and Rs. 2.5 crores for a factory with 2500 TCD capacity.
According to comparative chart of prices offered / accepted for sugar factories, which is at page 75 of the arguments/documents submitted by Advocate Shri P.R. Patil, the subject sugar factory is of 1250 TCD capacity. Thus, if the annual rent for subject factory is likely to be Rs. 1.50 crores or thereabout, this should be taken into consideration for the calculation as done by Advocate Shri Chandak for claiming financial viability for running the sick sugar factory on lease and restructuring the same. This aspect is discussed by us, while recording reasons for finding on issue No. 3 and we have arrived at a negative conclusion, regarding financial viability, presuming annual lease premium to be Rs. 3.00 crores.
This scheme itself indicates that tenders are to be invited for payment on the basis of per metric ton crushing. In the arguments of Advocate Shri Salunke, expected sugar cane crushing from the subject sugar factory is shown as 1,70,000/= metric tons. To fetch annual lease premium of Rs. 3.00 crores, it will require tender of Rs. 176 per metric ton and for minimum rent of Rs. 1.5 crores per annum, tender will have to be of Rs. 88/- per metric ton. In the paperbook writ petition No. 7907/2006, minutes of the meeting of the committee of Ministers dated 4.10.2006 on all seven subjects, are available, resolution pertaining to sick sugar factory being at serial No. 6. Subject No. 2 and Subject No. 4 are pertaining to leasing out of Jai Kisan Cooperative Sugar Factory at Mungsaji Nagar, Taluka Darva, District Yawatmal. Only one tender offering Rs. 5/= per metric ton for first four years (2006-7 to 2009-10) and thereafter Rs. 6,7 and 8 per metric ton for remaining three years, was received. As per subject No. 4, details of tenders received for Kakasaheb Karmaveer Sahakari Sakhar Karkhana Limited, Kakasaheb Nagar, Taluka Niphad, District Nasik, are available. Only two tenders were received and ultimately, tender of Vaidyanath Sahakari Sakhar Karkhana, was accepted who had quoted Rs. 62/= per metric ton for seasons 2006-07 and 2007-08, Rs. 65/= per metric ton for next three years and Rs. 71/= per metric ton for last year 2011-12. This tender appears to have been approved by the Committee of Ministers. Question that is required to be considered, is whether the sick sugar factory in Marathwada is likely to get a tender of Rs. 88/= per metric ton or Rs. 176 per metric ton. We feel fortified in having recorded a finding against financial viability of the subject sick sugar factory, by being run on lease.
In Clause 3 of the said government resolution, there is indication of the prices of the factories put to sale. In Khandesh and Vidarbha regions. Price for a factory having crushing capacity of 1250 TCD, is around Rs. 10.00 crores. No doubt, such an indication regarding price for sugar factory in Marathwada region is not available and sugarcane growing area in Khandesh Vidarbha region is said to have not increased, whereas ample sugar cane cultivation is said to be expected in Marathwada region. Therefore, price for sugar factory in Marathwada region will have to be considered on higher side as compared to price for sugar factory in Khandesh and Vidarbha region.
21. No. 4. Whether the provisions of Securatization Act are available to the MSC Bank, or such use of the provisions of the said Act, by MSC bank would amount to giving retrospective effect to the said provisions ? From the written arguments of Advocate Shri Dhorde, it is evident that the MSC bank has advanced loan to the sick sugar factory right from the year 1985 and last of such loan appears to have been advanced on 9.01.2002, about which promissory note/hypothecation deeds, seem to have been executed on 21.1.2002. Our attention was drawn by learned Senior Counsel Shri P.M. Shah, to the fact that the Securatization Act has come into force, on 21.6.2002. It was further pointed out that the cooperative banks were not covered by the definition `bank' as contained in Section 2(1)(c) of the said Act, which were so brought under the said definition, by Central Government, specifying the cooperative banks as defined in Clause (cci) of Section 5 of the Banking Regulation Act, 1949, as `bank' for the purpose of Securatization Act, vide S.O. 105 (E), dated 28.1.2003 published in the Gazette of India, Ext. Pt. II, S.3 (ii). According to learned Senior Counsel Shri Shah, therefore, provisions of the said Act will not be available to MSC Bank
The bank has tried to exercise rights conferred upon it by the Securatization Act, by notice under Section 13(2) of the said Act, dated 14.8.2003. By this notice, bank invited liquidator to pay an amount of Rs. 25.6481 crores, which included all debts under various mortgage deeds executed since 1985. It was the contention of Advocate Shri Dhorde that the rights under the Act are exercised only after those were available and hence, allowing the bank to exercise its rights does not amount to giving retrospective effect to the provisions of the Securatization Act, merely because the loan advanced was prior to coming into force of the Securitization Act.
In this context, reference to definition of borrower, as contained in Section 2 (1) (f) of the Securatization Act, in our opinion, may suffice to resolve the dispute. Said section reads;
"borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitazation company or reconstruction company consequent upon acquisition by it of any right or interest of any bank or financial institution in relation to such financial assistance.
In the matter at hands, it is not in dispute that now the MSC bank is `bank' for the purpose of Securatization Act at least from 28.1.2003. It is also not in dispute that it had granted financial assistance to the sick sugar factory, from time to time and sugar factory had `created' security in favour of the bank, by executing either promissory note, hypothecation deeds, or mortgage deeds. The definition of borrower is so worded that financial assistance rendered and guarantee given by the borrower is referred in `past participle' and, therefore, we feel even a borrower, who has borrowed loan and created security in favour of the `bank' would be covered by the Securatization Act, provided, steps under the said Act, are taken after coming into force of the Act. If the provisions of the Act are not to be so interpreted, then the Act will have to be made applicable only to those cases wherein financial assistance is rendered and securities are created only after coming into force, of the Securatization Act. We are unable to find any provisions in the Act, indicating such restricted application of the provisions of the Act. There is no specific provision in the said Act, indicating inapplicability of its provisions to the transactions entered into before the said Act coming into force. Restricted prospective application of the provisions of the Act, as tried to be interpreted by learned Senior Counsel, does not seem to be acceptable.
Point No. 4 is, therefore, answered in the affirmative, so far as first part is concerned and in the negative so far as later half is concerned.
22. Point No. 5 : Whether MSC Bank is a "Secured Creditor" within the purview of Securatization Act qua Sick Sugar Factory ?
The term "secured creditor" is defined by Section 2 (1) (zd) of the Securatization Act and the same reads thus:
(zd) "secured creditor" means any Bank or financial institution or any consortium or group of bank or financial institutions and includes -
in whose favour security interest is created for due repayment by any borrower of any financial assistance.
In the second half of the definition of "secured creditor" quoted hereinabove, two more technical terms appear i.e. "security interest" and "borrower". Those are defined by Section 2 (1) (zf) and 2 (1) (f) of the Securatization Act. Those technical terms read thus:
(zf) "security interest" means right, title and interest of any kind whatsoever upon property created in favour of secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31.
Section 31 excludes certain categories of securities from the applicability of Securatization Act to those. The term "borrower" is defined as under.
(f) "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes....
While discussing reasons for recording findings on Point No. 4, we have already pointed out that the term "borrower" is couched grammatically with the use of past-participle i.e. "person who has been granted" and, therefore, we have held that although MSC Bank is brought within the definition of Bank as defined under Section 2 (1) (c), by virtue of a notification of the Central Government, in exercise of the powers conferred by Section 2 (1) (c) (v) of the Securatization Act; with effect from 28-01-2003, that will not exclude a borrower who has borrowed the loans or received financial assistance either before commencing into force of Securatization Act on 21-06-2002 or those who have received financial assistance before 28-01-2003 from the Cooperative Societies which are brought within the definition of "bank" with effect from that date.
It is admitted position that Sick Sugar Factory has received financial assistance from MSC Bank from time to time and according to details furnished by learned advocate Shri Dhorde, in his written arguments, the details can be narrated as follows.
For the financial assistance received, the bank has executed a hypothecation deed for an amount of Rs. 3.65 crores of its entire landed property as also plant and machinery. The said hypothecation deed is at page 108 (Exh-O-1 of writ petition No. 1278/2004). Another mortgage deed was executed by Sick Sugar Factory on 28-02-1996 of the property described in three schedules (paper book pages 295 to 297 of writ petition No. 1278/2004) for Rs. 4.93 crores. This mortgage deed was registered only on 10-06-2004. Another mortgage deed was executed on 30-12-1998 for an amount of Rs. 2.34 crores which was registered on 21-02-2008, while arguments were in progress. A Promissory Note for Rs. 1.63 crores and another Promissory Note for Rs. 17.50 crores were executed on 19-11-2001 and 21-01-2002. Even if we are to ignore the Promissory Notes because those may not create any charge upon the property of the borrower Sick Sugar Factory, for loan advanced of Rs. 18.15 crores on 09-01-2002, the Sick Sugar Factory seems to have executed two hypothecation deeds on 21-01-2002 of Rs. 45 lacs and Rs. 20 lacs respectively.
From the details provided by learned Counsel for the MSC Bank, it is evident that the Sick Sugar Factory has borrowed the amounts and thus received financial assistance from MSC Bank from time to time and it has also executed either mortgage deed or hypothecation deed in favour of the Bank thereby creating security interest as defined by Section 2 (i) (zf) in favour of the MSC Bank. The factual details, therefore, indicate that the Sick Sugar Factory is a borrower having been granted financial assistance by the MSC Bank from time to time in the form of either loan or cash credit. The Sick Sugar Factory having mortgaged/hypothecated its landed property as also plant and machinery, has created security interest in favour of MSC Bank which has rendered to the Factory financial assistance and thus, MSC Bank can be termed to be a "Secured Creditor" qua Sick Sugar Factory.
Exception was raised about mortgage deeds dated 28-02-1996 and 30-12-1998 because those were registered much later and not on the date of execution. These mortgage deeds were registered on 10-06-2004 and 30-12-1998.
Learned Senior Counsel Shri P.M. Shah has placed reliance on Section 59 of the Transfer of Property Act which requires a mortgage to be effected only by a registered instrument signed by the Mortgagor and attested by at least two witnesses where the principle money secured exceeds Rs. 100/-. It was, therefore, contended that since those two mortgage deeds were not registered on the date of execution, it cannot be said that those are securities creating secured interest in favour of MSC Bank. The argument is replied by learned Counsel Shri Dhorde for the Bank, by placing reliance on Section 47 of the Registration Act, 1908 which reads thus:
47. The time from which registered time from which registered time from which registered document operates:- A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.
It was submitted that although registration is subsequent to the execution, once the document is registered, although belatedly, the registration relates back to the date of execution. This is because once the document is registered, it operates from the time since when it would have commenced to operate, as if no registration was required. In other words, it would operate from the date of execution. This argument was supported by the learned Counsel by placing reliance on couple of reported judgements. In the matter of "Gurbax Singh v. Kartar Singh and Ors. v. Kartar Singh and Ors. reported at , following are the observations in paragraph No. 3.
In view of provision of Section 47 of the Registration Act, 1908, it is well settled that a document on subsequent registration will take effect from the time when it was executed and not from the time of its registration.
Even in the matter of "Thakur Kishan Singh v. Arvind Kumar reported at AIR 1995 SCC 73, it was observed thus:
It is well established that a document so long it is not registered is not valid, yet, once it is registered, it takes effect from the date of its execution.
Taking into consideration the factual details hereinabove which indicate that Sick Sugar Factory received financial assistance from MSC Bank and thus became its borrower and that it also executed mortgage/hypothecation deeds thereby creating a charge upon landed property as well as plant and machinery of the Sugar Factory, in favour of the Bank, it created security interest in favour of the Bank thereby conferring status of "secured creditor" upon the Bank. Although couple of mortgage deeds were registered and belatedly, once registered, the date of execution of security interest relates back to the date of execution of the document, by virtue of Section 47 of the Registration Act, 1908 and, therefore, the belated registration does not come in the way of MSC Bank claiming to be "secured creditor" of Sick Sugar Factory.
Point No. 5 is, therefore, answered in the affirmative.
23. No. 10 : Whether Writ Petition of the MSC Bank is not maintainable without successfully challenging appointment of the Liquidator ?
It was submitted by learned Senior Counsel Shri P.M. Shah that writ petition filed by the MSC Bank is not maintainable without challenging the appointment of the Liquidator. Although we have framed point No. 10 in response to such an argument, we feel that it is strictly not necessary to answer the point. The maintainability of a litigation and sustainability of it are two different things. The writ petition may fail if the provisions regarding appointment of Liquidator as contained in the MCS Act are to prevail over the provisions of the Securatization Act. The Bank has come with a case that provisions of Securatization Act have overriding effect and, therefore, the Bank has a right to exercise its rights as conferred by the Securatization Act irrespective of appointment of the Liquidator. If this argument is sustainable, the Bank would be in a position to exercise its rights inspite of there being appointment of Liquidator much before coming into force of Securatization Act and issuance of notice under Section 13 (2) by the Bank. What remedy is to be sought and how that is to be achieved is zone for consideration by the petitioner. There is no bar in filing a litigation which may not be successful at the end. If the provisions of Securatization Act are not available, the writ petition of the Bank may fail, but that does not necessarily mean that writ petition is not maintainable. If the Bank were to challenge the appointment of Liquidator, the Liquidators could have argued that in view of availability of alternate remedy by way of an appeal under Section 104 of the MCS Act, the writ petition is not maintainable, but the Bank has chosen not to challenge the appointment of Liquidator and, therefore, it has taken the risk regarding success or failure of the writ petition depending upon the finding on its contention that provisions of the Securatization Act override the provisions of the MCS Act. The writ petition could have been said not maintainable because alternate remedy is available, because this Court has no jurisdiction to entertain the litigation, may be because of territorial limits. Having held that provisions of the Securatization Act are available to MSC Bank as a result of affirmative finding on point No. 5, writ petition must be held to be maintainable, its success or failure is a distinctly different issue. We, therefore, hold that writ petition is maintainable and record negative finding on point No. 10. On reference to Section 104 of MCS Act, it is evident that remedy of appeal against an order of winding up (and consequent appointment of liquidator) is available only to a member of the society, and not to a creditor.
24. No. 7 : Whether alienation/transfer of "security assets" without consent of "secured creditor" MSC Bank, is barred by Section 13 (13) of the Securatization Act ?
Section 13 of the Securitization Act speaks about enforcement of security interest and secured creditor is granted a right to enforce the security interest without the intervention of the Court. Section 13 (2) requires the creditor to give a notice to the borrower inviting the borrower to discharge in full his liabilities towards the secured creditor within sixty days from the date of notice, failing which secured creditor can exercise all or any of his rights under Section 4. Sub-section 3 requires the creditor to indicate in the notice the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor, in the event of non-payment of secured debts by the borrower. Sub-section 3-A inserted by amendment obliges the creditor to consider the representation/objection raised by the borrower and if the same is not acceptable or tenable, to communicate within one week of the receipt of representation or objection, the reasons for nonacceptance of the same. Sub-section 4 indicates the manner in which security interest can be enforced by the creditor. He can take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale, for the purpose of realising the dues. The creditor can also take over the management of the business of the borrower and appoint a person to manage the secured assets, possession of which is taken over. It also enables the creditor to require by notice in writing, any person who has acquired any secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor the amount sufficient to satisfy the secured debt.
Sub-section 13 reads thus:
No borrower shall, after receipt of notice referred to in Sub-section 2, transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice without prior written consent of the secured creditor.
In the matter at hands, notice under Section 13 (2) of the Securatization Act was issued on 14-08-2003. The advertisement by the Liquidator calling tenders for lease/sale of the Sugar Factory was issued on 7th/8th December, 2003. Even the initiation of the process for transferring/alienating the assets of the Sugar Factory is later in time as compared to notice under Section 13 (2) of the Securatization Act. While recording finding in the affirmative on the first part of the point No. 4, we have already held that provisions of the Securatization Act will be available to a secured creditor even if the security interest was created before coming into force of the Securatization Act and, therefore, it will have to be said that Section 13 (13) would come into play as soon as notice under Section 13 (2) is served on the borrower and the borrower shall not be in a position to transfer by way of sale, lease or otherwise any of the secured assets referred to in the notice. The contention of learned advocate Shri Dhorde that the assets of the Sugar Factory i.e. immovable property and plant and machinery cannot be transferred by way of sale or lease without written consent of the secured creditor, appears to have considerable force.
In order to buttress his proposition, learned advocate Shri Dhorde has placed reliance upon the observations of the Supreme Court in the matter of "Transcore v. Union of India and Anr. reported at , and more particularly those in paragraph No. 32, which read as follows.
Section 13 (13) states that, no borrower shall after receipt of the notice under Section 13 (2), transfer by way of sale, lease, or otherwise any of his secured assets referred to in the notice without prior written consent of the secured creditor. Thus, Section 13 further fortifies our views that notice under Section 13 (2) is not merely a show-cause notice, in fact, Section 13 (13) indicates that notice under Section 13 (2) in effect operates as an attachment/injunction restraining the borrower from disposing of the secured assets and therefore, such a notice, which in the present case is dated 06-01-2003, is not mere show-cause notice, but is an action taken under the provisions of NPA Act" (the Hon'ble Court has referred to the Securitization Act as "NPA Act" for the sake of brevity).
We, therefore, feel supported in observing that in view of service of notice under Section 13 (2) dated 14-08-2003, the secured assets which were referred in the said notice shall stand attached by the secured creditor and, therefore, it may not be possible to transfer those secured assets without written consent of MSC Bank as required by Section 13 (13) of the Securatization Act. In fact, this legal positioin is accepted by State, in its Resolution dated 29.11.2005 in imposing a condition of approval of financial institution, to lease, before issuing tender notice to lease, even if factory is under liquidation, if financial institution has taken steps under Securatization Act.
Point No. 7 is, therefore, answered in the affirmative.
25. Point No. 8 (Parts I and II):
Whether the MSC Bank has a right to recover sale proceeds and pledge sugar stock as a Pawnee, to the exclusion of other creditors of the Sick Sugar Factory?
Whether the provisions of the Securatization Act cannot be enforced by the MSC Bank against the movables i.e. pledged sugar ?
It was submission of learned advocate Shri Dhorde, by relying upon the notice under Section 13 (2) that as required by Sub-section 3 of Section 13, Bank has indicated the amount due from the Sick Sugar Factory to be Rs. 25.6481 crores and it has also indicated that the properties are described in two schedules. The notice also indicates that even the movables are mortgaged with the Bank and, therefore, it would proceed against the movables also, under Section 13 (4) of the Securatization Act in case the liability is not discharged by the Sick Sugar Factory within sixty days from the receipt of notice. A strong exception is taken by almost all the learned lawyers appearing for the State, Liquidators and the Union of Workers that the provisions of the Securatization Act will not be applicable as against pledged sugar stock. Learned advocate Shri Dhorde has come out with alternate argument that MSC Bank has a right to recover sale proceeds of pledged sugar stock to the exclusion of other creditors by MSC Bank as Pawnee. This contention is contained in Part-I of point No. 8 and we intend to defer answering that point for the time being, which we shall deal little later. At present we are considering only second part of the point which is based upon submissions by the learned Counsel for the Liquidators and Workers' Union that pledged sugar cannot be allowed to be disposed of in exercise of the rights conferred upon the creditors by Sub-section 4 of Section 13. We may only reproduce the provisions relied upon by respective counsel.
Section 31 Clauses (a) and (b) relied upon, read thus:
Section 31 - Provisions of this Act not to apply in certain cases ce:
The provisions of this Act shall not apply to -
(a) a lien on any goods, money or security given by or under Indian Contract Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force;
(b) A pledge of movables under Section 172 of the Indian Contract Act.
Admittedly, sugar stock is pledged with the Bank by pledge created under Section 172 of the Indian Contract Act and, therefore, the submission of learned Senior Counsel Shri P.M. Shah and learned advocate Shri S.T. Shelke, representing the Liquidators and the Union of Workers, respectively, that the sugar stock although pledged with MSC Bank, notice under Section 13 (2) of the Securatization Act will not enable the Bank to deal with the same to the exclusion of other creditors, has considerable substance. In fact, the language of Section 31 (b) is quite clear. But the arguments advanced by learned Senior Counsel Shri Shah and learned advocate Shri Shelke, also get support from the definition of "security interest" as contained in Section 2 (1) (zf). (We have already reproduced the definition of "security interest" while dealing with Point No. 5 earlier). By the terminal clause "other than those specified in Section 31", the exclusion of pledged goods from the category of "security interest", stands further confirmed and, therefore, it must be said that the MSC Bank shall not be in a position to deal with the pledged sugar stock under Section 13 (4) of the Securatization Act.
The language of Sub-section 11 further confirms that pledged movables cannot be considered to be dealt with under the provisions of the Securatization Act and more particularly, Sub-section 4 of Section 13. Sub-section 11 reads thus:
11. Without prejudice to the rights conferred on the secured creditor, under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without taking any of the measures specified in Clauses (a) to (d) of Sub-section 4 in relation to the secured assets under this Act.
It must, therefore, be said that the notice under Section 13 (2) of the Securatization Act will not enable the MSC Bank to wrap up the pledged sugar stock for the purpose of effecting its sale in its attempt to recover the dues.
The second part of Point No. 8, therefore, will have to be and is, accordingly, answered in the affirmative i.e. against the MSC Bank.
26. Point No. 8 (Part I). Whether MSC bank has a right to recover sale proceeds of pledged sugar stock (as pawnee), to the exclusion of other creditors of the sick sugar factory ?
As already discussed in the earlier paragraph, this point is framed because of alternate submission by Advocate Shri Dhorde for MSC bank. Having already held that the provisions of Securatization Act are not applicable to a pledge created under Section 172 of the Contract Act and it being an admitted position that sugar stock is pledged (and not mortgaged) with the MSC bank, Advocate Shri Dhorde has relied upon provisions of the Indian Contract Act for the purpose of claiming that even as a Pawnee, the bank has a right to recover its dues by effecting sale of pledge sugar stock and to the exclusion of other creditors. By virtue of Section 172 of the Indian Contract Act, the bailment of goods as security for payment of a debt is called `pledge'. Bailment is delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. According to Advocate Shri Dhorde, sick factory had delivered the stock of sugar to the MSC bank, by putting the godowns of sugar stock under control of the MSC bank. While claiming right to recover dues, by effecting sale of pledged sugar stock, to the exclusion of others, Advocate Shri Dhorde had placed reliance upon Section 176 of the Indian Contract Act, which reads;
176. Pawnee's right where pawnor makes default
If the pawnor makes default in payment of debt, or performance at the stipulated time, of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against pawnor upon the debt or promise, and retain the goods pledged as a collateral security, or he may sell the things pledged on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.
Advocate Shri Dhorde has also relied upon observations from the judgments of the Hon'ble Supreme Court, in couple of judgments.
In the matter of Bank of Bihar v. State of Bihar and Ors. , the sugar stock of defendant No. 2, which was
pledged with the bank, was seized by the Rationing Officer and the District Magistrate. The sale proceeds were appropriated towards arrears of sugar cess and no payment was made to the bank. It was observed by the Supreme Court that the Cane Commissioner, who was the unsecured creditor, could not have higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the Plaintiff's dues. Rights of the Pawnee who had parted with money to the pawnor on the security of the goods, it was held; cannot be extinguished even by lawful seizure of goods, by the government and by making money available to other creditors of the pawnor without the claim of the Pawnee being first fully satisfied.
In Karnataka Pawn Brokers Association v. State of Karnataka , it was held;
Pawnbroker has special property rights in the goods pledged, a right higher than a mere right of detention of goods, but a right lesser than general property rights in the goods. To put it differently, pawner, at the time of pledge, not only transfers to the pawnee the special right in the pledge, but also passes on his right to transfer the general property right in the pledge in the event of pledge remained unredeemed resulting in the sale of the pledge by public auction through an approved auctioneer.
Thus, Advocate Shri Dhorde has laid emphasis on the special position of the MSC bank as a Pawnee of the pledged sugar stock.
According to Advocate Shri Dhorde, the sale proceeds of the sugar stock deposited in the court, is Rs. 15.58 crores (as per the order of the court in WP No. 330/2005 by the Union of workers). Another amount of Rs. 1.23 crores received by way of sale proceeds of the sugar stock, is deposited and lying with the liquidator. As per Section 176 of the Contract Act, two courses are open for the pawnee. He can sue the pawnor upon the debt, by retaining the pledged goods as security. The other mode available is, effecting sale of the pledged goods and recover the dues. However, for taking second step, the Pawnee is required to give a reasonable notice of the sale, to the pawnor.
From the language of Section 176 of the Contract Act and observations of the Hon'ble Apex Court in the two matters relied upon by Advocate Shri Dhorde, it will have to be said that the MSC bank is a secured creditor in its capacity as a Pawnee of the sugar stock and, therefore, shall have preference in satisfaction of its debts, from the sale proceeds of the sugar stock, over other unsecured creditors.
Such an interpretation also finds support in Sub-section (11) of Section 13 of the Securatization Act, which recognizes the right of the secured creditor to effect sale of pledged assets without reference to rights under Sub-section (4) of Section 13. Sub-section (11) reads thus;
(11). Without prejudice to the rights conferred on the secured creditor under or by this Section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in Clauses (a) to (d) of Sub-section (4) in relation to the secured assets under this Act.
Point No. 8 (part I) is answered, accordingly.
27. Point No. 12. Whether the claims of the workers are priority claims and the "secured creditor" is obliged to deposit the amounts towards dues of the workers, with the liquidator?
It is desirable that this issue is considered together with point No. 8 (part I). This is because, the MSC bank has claimed its right to recover the sale proceeds of pledged sugar stock to the exclusion of all other creditors of the sick sugar factory. By taking an action under Section 13(2) of the Securatization Act, the bank has clearly indicated that it is unwilling to part with any of the sale proceeds, either of the stock of sugar or assets of the sick sugar factory, unless its dues are fully recovered.
As against this, it is the claim of the workers that unpaid amount of salaries and allowances of the workers is a priority claim and secured creditor is also required to spare the amount towards these dues of the workers, by depositing the same with the liquidator. In order to support such a submission, Advocate Shri Shelke for Union of Workers has placed reliance upon the circular dated 18.6.2002 (page 25 in WP 5844/07), as also few judicial pronouncements and proviso to Sub-section (9) of Section 13 of the Securatization Act.
So far as circular dated 18.6.2002 is concerned, the same is practically reproduction of Rule 18 (A) of the MCS Rules 1961 and more particularly, Sub-rule (2) (d). Even the subject of the circular is similar to the title of Rule 18(A) i.e. "Conditions for realising assets and liquidating the liabilities of the deregistered society by the Official Assignee." Clause (2) of Rule 18(A) deals with the powers of the Official Assignee and Clause (d) empowers him to investigate all the claims against the deregistered society and subject to provisions of the Act, also to decide the questions of priority arising out of such claims. It is his duty to pay any class or classes of the creditors in full or ratable, according to the amounts of such debts. This Clause (d) contains a list of priorities. In this list, first priority is the remuneration of the Official Assignee, and wages and other payments to be made to the employees of the deregistered society, wages and other payments to be made to the employees of deregistered society, including arrears, are at serial No. (ii). Secured loans are at serial No. (xiii). Therefore, it was the contention of Advocate Shri Shelke, that the claim of the workers towards salaries and allowance has a priority over the secured debt of the bank. It must be taken into consideration that the circular, as well as Rule 18 (A), apply to the socitey which is deregistered by the Registrar. In this context, Section 21 (A) of the MCS Act, will have to be referred to, which deals with "Deregistration of the societies". The Registrar has power to deregister a society, if he is satisfied that the same is registered on misrepresentation by the applicant, or the work of the society is completed or the purpose for which it was registered, is not served. Eventually, the subject factory is a society under `liquidation' and not a society under `deregistration'. Yet, Advocate Shri Shelke desires to draw an analogy in favour of the workers, insofar as priority in payment of dues is concerned.
Reliance is also placed by Advocate Shri Shelke on observations in paragraph 3 of the judgment of the Hon'ble Apex Court in Workers of Rohtas Industries Ltd. v. Rohtas Industries Ltd. 1987 (1) CLR 420, which read thus;
It is no doubt true that these products the stock of which have been shown in the report and the value of which has been shown by the Liquidator as Rs. 91,77,000/= is pledged with Banks, is a priority in law in favour of the Banks but it also could not be disputed that these stocks were the products of this industry before its closure and, therefore, the workers also contributed their labour and it is the result of their hard-work that these stocks could be produced and in our opinion, therefore, it could not be said that the wages and emoluments for the period upto closure would not rank in priority. It is also significant that after the closure in July 1984, till today in spite of the order passed by this Court the workers have not been paid. Their subsistence and living is also perhaps of paramount importance and has to rank with highest priority.
In the matter of "Girni Kamgar Sangharsha Samiti and 2 Ors. v. Khatau Mackanji Spinning & Weaving Co. & 8 Ors. reported at 1998 I CLR 997", relied upon by learned Counsel for the Union of Workers, a Division Bench of this High Court held that in a case where wages are undisputedly due, financial inability is no defence for non-payment. The Court had directed to make payment to the workers who had attended and signed the muster roll for the period March, 1997 and onwards, as interim relief. The judgement, therefore, cannot be considered to be followed as ratio laid down.
In the matter of "Mohan Kamlakar v. Joshi Metal industries, Bijapur, reported at 1999 Lab.I.C. 222", the Karnataka High Court held that claim of workmen has to be given priority over dues under award in favour of Bank. In the reported case, Bank had obtained an award from the Cooperative Court. By order dated 31-01-1996, the Labour Court had also quantified the amount payable to 34 workmen and a certificate under Section 33 (c) (1) of the Industrial Disputes Act, 1947 was issued, providing for recovery of the amounts as arrears of land revenue. We feel that the factual details for which the Karnataka High Court held the claims of workmen to be priority, can be distinguished from the matter at hands.
In the matter of "G. Surendran and Ors. v. State of Kerala and Ors. 2004 LAB. I.C. 312", learned Single Judge of Kerala High Court upheld the claim of workers as having priority over the claim of the State towards arrears of Sales Tax, by relying upon the observations of the Supreme Court in the matter of Bank v. Canara Bank", reported at AIR 2000 S.C. 1535, to the effect -
...In view of the general principles laid down in National Textile Worker's Union v. P.R. Ramakrishnan there is an
obligation resting on this Court to see that no secured or unsecured creditors including banks or financial institutions, are paid before the workmen's dues are paid.
Eventually, these observations in the matter of "Allahabad Bank v. Canara Bank were under scrutiny before a larger Bench of the Supreme Court in the matter of "Andhra Bank v. Official Liquidator and Anr. . The judgement opens with following observations.
Doubting the correctness of the statement of law contained in paragraph 76 of the judgement of this Court in Allahabad Bank v. Canara Bank and Anr. , a Division Bench of this
Court has directed that the matter be placed before a Bench of three Judges.
The issue is considered by the Hon'ble the Apex Court in paragraphs No. 18 to 26 of the judgement and paragraphs No. 24 and 25 read thus:
24. While determining the Point No. 6, however, a stray observation was made to the effect that the "workmen's dues" have priority over all other creditors, secured and unsecured because of Section 529-A (1) (a). Such a question did not arise in the case as the Allahabad Bank was indisputably an unsecured creditor.
25. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support from the clear and unambiguous language contained in Section 529-A (1) (a). We have, therefore, no hesitation in holding that finding of this Court in Allahabad Bank (supra) to the aforementioned extent does not lay down the correct law.
In subsequent paragraph No. 26, the Court has also held that decision in the matter of "National Textile Workers' Union and Ors. v. P.R. Ramakrishnan and Ors. ", relied upon in the matter of "Allahabad Bank" was not applicable. The Supreme Court thus has overruled the view that the workmen's dues have priority over all other creditors.
Reliance was also placed on Proviso to Sub section 9 of Section 13 which reads thus:
Provided that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529-A of the Companies Act, 1956 (1 of 1956).
Provided further that in the case of a Company being wound up on or after the commencement of this Act, the secured creditor of such Company, who opts to realize his security instead of relinquishing his security and proving his debt under Proviso to Sub-section (1) of Section 529 of the Companies Act, 1956 (1 of 1956) may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529-A of that Act.
The third Proviso requires the secured creditor to deposit amount of estimated dues of workmen with the liquidator in case the dues cannot be ascertained. Relying upon these provisions, learned advocate Shri Shelke submitted that the MSC Bank is obliged to spare an amount equivalent to the dues of workmen from the sale-proceeds either of assets or of pledged sugar stock.
The Proviso relied upon refers to "Company in Liquidation". The word "Company" is not defined by the Securatization Act, but as per Sub-section (2) of Section 2, the words and expressions used and not defined in the Act are to have the same meanings assigned to them in the Indian Contract Act, the Transfer of Property Act, the Companies Act or the SEBI Act.
On reference of Section 3 of the Companies Act, 1956, a Company requires registration under the said Act. It is not the case of learned advocate Shri Shelke that Sick Factory is a "Company" registered under the Companies Act, 1956. Therefore, reliance upon Proviso to Sub-section 9 of Section 13 cannot advance the cause of the workers beyond claiming the same to be used as an analogy. It cannot be said that claims of the workers are priority claims over and above the claims of secured creditors.
Point No. 12, therefore, will have to be and is, accordingly, answered in the negative.
28. Point No. 6: No. 6: No. 6: Whether `liquidator' would be covered by the definition of "borrower" as contained in Section 2(1)(f) of the Securatization Act ?
It is not disputed that notice under Section 13 (2) of the Securatization Act, dated 14.8.2003, is served by MSC bank upon liquidator whose appointment was confirmed under Section 102(2) by MCS Act, on 15.5.2002. Learned Counsel for liquidators submitted that the Securitization Act, Section 13 (2); contemplates a notice to the borrower and, therefore, notice to the liquidator is no notice in the eye of law. Such a proposition was countered by Advocate Shri Dhorde for MSC bank, by contending that the definition of the `borrower' would include `liquidator' and, therefore, notice under Section 13 (2) cannot be faulted with, merely because it was addressed to the then liquidator. At the cost of repetition, we may reproduce the definition of borrower as contained in Section 2 (1) (f) of the Securitization Act:
(f). "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securatization company or reconstruction company consequent upon acquisition by it, of any rights or interests of any bank or financial institution in relation to such financial assistance.
No doubt, in the definition of `borrower' reproduced hereinabove, there is no reference to the liquidator. But, what is the status of the liquidator, upon his appointment as a result of an order under Section 102 (2), must be gathered from the MCS Act and rules thereunder, so far as those relate to the `liquidator' of a cooperative society. Sub-sections (2),(3) and (5) of Section 103 read thus;
103. Appointment of liquidators:
(2) On issue of interim order, the officers of the society shall handover to the liquidator, the custody and control of all the property, effects and actionable claims to which the society is or appears to be entitled and all books, records and other documents pertaining to the business of the society and shall have no access to any of them.
(3). When a final order is passed confirming the interim order, the officers of the society shall vacate their offices and while winding up order remains in force, the general body of the society shall not exercise any powers.
(5). The whole of the assets of the society shall, on appointment of the liquidator under this section, vest in such liquidator and notwithstanding anything contained in any law for the time being in force, if any immovable property is held by a liquidator on behalf of the society, the title over the land shall be complete as soon as the mutation of the name of his office is effected, and no Court shall question the title on the ground of dispossession, want of possession or physical delivery of possession.
Although Sub-section (5) is given an effect, overriding other laws and although it is said that title of the liquidator over the land shall be complete as soon as mutation of the name of his office is effected and such title cannot be questioned on the ground of dispossession, want of possession of physical delivery of possession, yet it must be taken into consideration that Sub-section (5) does not speak anything about encumbrance/charge, if any, upon the property, already created and surviving on the date of liquidator taking custody and control of the property of the society. Although it is said, "title over the land shall be complete", it is nowhere said, either in Sub-section (2) or Sub-section (5) that, title of the liquidator would be free from any encumbrance / charge already created by the society under liquidation and which is subsisting on the date the liquidator takes over. The use of phrase, "the officers of the society shall hand over to the " liquidator the custody and control of all the property",",", also cannot be ignored. Although Sub-section (5) may be speaking about the title, what liquidator receives from the officers of the society on issue of interim order, is custody and control of all the property, which gets confirmed upon passing of final order, whereafter title of the liquidator over the land is said to be complete, but not said to be "free from all encumbrances / charges".".".
Section 105 and some clauses from the said provision, regarding powers of the liquidator may also be usefully reproduced.
105. Powers of Liquidator
(1). The Liquidator appointed under Section 103 shall have power, subject to the rules and the general supervision, control and direction of the Registrar,-
(c). to sell all immovable and movable property and actionable claims of the society by public auction or private contract, with power to transfer the whole or part thereof to any person or body corporate, or sell the same in parcels:
(f). to make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging themselves to have any claims, present or future, whereby the society may be rendered liable.
(g) to (m) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(n). to do all acts, and to execute in the name and on behalf of the society, all deeds, receipts and other documents as may be necessary to such winding up.
Other clauses of Sub-section (1) of Section 105 indicate that the liquidator can institute and defend legal proceedings on behalf of society, but in the name of his office (clause `a'). He is also permitted to carry on business of the society, as may be necessary for beneficial winding up (clause `b'). He is also authorised to raise, on the security of the assets of the society, any money required (clause `d').
It is evident from these provisions that the liquidator not only takes custody and control of the property, but is also empowered to deal with the property in the same manner in which the society under liquidation and its management could have dealt with it. Thus, the liquidator, except for his additional duty to take all the steps towards liquidation of the cooperative society, steps into the shoes of the management of the society and is empowered to deal with the property of the society, in the same manner in which the society and its management could have.
It is the normal rule of law that the transferee cannot have title better than transferor. If the properties of the society are already encumbered / charged before appointment of the liquidator, then in the absence of any specific provisions to that effect in chapter 10th of the MCS Act, i.e. regarding transfer of property to the liquidator free from such encumbrances / charges, it will have to be said that the liquidator steps into the shoes of borrower cooperative society. Therefore, notice under Section 13(2) issued to the liquidator, who had already taken custody and control of the property of the borrower, cannot be said to be vitiated.
By virtue of definition of 'borrower', a borrower of a bank or financial institution, continues to be borrower of a securatization company or reconstruction company, consequent upon acquisition by it, of any rights or interests of any bank or financial institution in relation to the financial assistance so rendered. Section 13(4) (d) of the Securatization Act indicates that the person who steps into the shoes of borrower becomes the borrower. We quote:
13. Enforcement of security interest.
(4) In case the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
It is evident that, by virtue of definition of `borrower', a securatization company or reconstruction company becomes `creditor' of the original borrower, upon acquiring rights or interests of the bank/financial institutions in relation to the financial assistance to the borrower. Similarly, by virtue of language in Clause (d) to Sub-section (4) of Section 13, a person who acquires any of the secured assets from the borrower and even a person from whom any money is due or may become due in favour of the borrower, can be proceeded against, for recovery of `secured debt' and thus, it can be said that the person acquiring any of the secured assets from borrower, steps into the shoes of the borrower.
Point No. 6 will, therefore, have to be and is, accordingly, answered in the affirmative.
The liquidator will, therefore, have to be treated as `borrower' as a result of his status as can be gathered from the provisions of the MCS Act, regarding his duties and powers, as also by virtue of Section 13(4) (d) of the Securitization Act, as a person having acquired secured assets from the borrower.
29. Points No. 14 and 2:
Point No. 14 : Whether writ petition No. 7907/2006, preferred by Ratnaprabha Sugars is not maintainable because -
(a) it has failed to demonstrate readiness and willingness to perform its part of contract; and
(b) the same is based on contractual relationship for which alternate remedy is available ?
Point No. 2 : Whether the decision dated 16-03-2004 forfeiting the E.M.D. of Ratnaprabha Sugars stands cancelled due to subsequent developments/merged into subsequent decisions, or whether forfeiture of the E.M.D. has brought an end to the contract, if any, between Ratnaprabha Sugars and the Liquidator?
We feel it desirable to consider these two points together because Point No. 14 (a) is certainly related to Point No. 2.
So far as non-maintainability of the writ petition, because the same is based on contractual relationship for which alternate remedy is available i.e. a suit for specific performance, is concerned, learned advocate Shri Patil has tried to reply, by pointing out that this is not a case wherein Ratnaprabha Sugars could not have invited this Court to invoke plenary powers under Article 226 of the Constitution of India. According to him, the Authorities of the State and the Liquidator had shown clear indication to accept the bid of the petitioner. The completion of the auction was obstructed because of action initiated by the MSC Bank in the form of writ petition No. 1278/2004. With the passage of time, the Government Authorities and the Liquidator turned volt-face and cancelled their decision to accept the bid of the petitioner, subsequent proposal to enter the compromise and decided to lease out the Sugar Factory. If successful, petitioner would be getting specific performance of the contract that was offered by the Liquidator. The petitioners have approached this Court, challenging the decision dated 04-10-2006 on the ground of the same being arbitrary, unreasonable, in breach of principles of natural justice and by a Committee not competent to take such a decision. According to Advocate Shri Patil, although it could be argued that even remedy of a declaration against the decision dated 04-10-2006 would be available by a Suit in the Civil Court, yet, the question would be whether a Civil Suit would be an efficacious remedy. It was also submitted that it is not a rigid rule that writ petition must not be entertained, if an alternate remedy is available.
Shri Patil has placed reliance upon couple of reported judgements in order to support his contention. In the matter of "Noble Resources Ltd. v. State of Orissa and Anr. 2006 AIR SCW 5408, the Hon'ble the Apex Court observed thus, in paragraph No. 15:
15. It is trite that if an action on the part of the State is violative the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court's scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article 14 of the Constitution. While exercising contractual powers also, the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouritism on its part. Indisputably, inherent limitations exist, but it would not be correct to opine that under no circumstances a writ will lie only because it involves a contractual matter.
In "Food Corporation of India and Anr. v. SEIL Ltd. and Ors. , in paragraph No. 11, it is observed by the Hon'ble the Apex Court thus:
11...It is now no longer res integra that contractual disputes involving public law element are amenable to writ jurisdiction.
In the reported matter, the Central Government had not only scrutinized the bills but also verified the claims of the respondents. Directions were issued to make payment, but appellant withheld the payment without any legal justification.
In the matter of "Popcorn Entertainment and Ors. v. City Industrial Development Corporation reported at the argument that writ petition is not maintainable, was replied by relying upon decision in the matter of "Whirlpool Corporation v. Registrar of Trademarks, Mumbai and Ors. ", wherein the Hon'ble the Apex Court has held that there are three clear-cut circumstances wherein a writ petition would be maintainable, even in a contractual matter. Those circumstances as quoted in the reported judgement are:
(i) Firstly, if the action of the respondent is illegal and without jurisdiction,
(ii) Secondly, if the principles of natural justice have been violated and
(iii) Thirdly, if the appellants' fundamental rights have been violated.
According to learned Advocate Shri Patil, in the writ petition, petitioners have come out with a case of all these three grounds applicable to the decision dated 04-10-2006.
In view of the factual details, which are elaborately described in earlier part of this judgement in para No. 8 and the contentions raised by the petitioners, it cannot be said that writ petition is not maintainable, merely because it is based on contractual relationship between Ratnaprabha Sugars and the Liquidator. Hence, Point No. 14 (b) is answered in the negative.
In fact, a negative finding on Point No. 14 (b) also causes some adverse impact on Point No. 14 (a). Learned Senior Counsel Shri P.M.Shah, for the Liquidators, has tried to give a treatment to the writ petition of Ratnaprabha Sugars, as if it is a suit for specific performance. It was even submitted that no relief can be granted unless there is existing right in favour of the petitioner, and yet, it was also argued that the petitioner is not entitled to any relief, because in order to have relief of specific performance of the agreement dated 01-08-2006 by setting aside the decision dated 04-10-2006, Ratnaprabha Sugars must show that it was always ready and willing to perform its part of contract. The main ground of attack was that Ratnaprabha Sugars has pretended its willingness to deposit the bid amount but has never deposited the bid amount. It was also contended by learned Senior Counsel, as also by learned Government Pleader, that communications dated 11-03-2004 and 16-03-2004 clearly indicate refusal of time extension to deposit the bid amount to Ratnaprabha Sugars. According to these Counsel, since communication dated 16-03-2004 indicated Ratnaprabha Sugars forfeiture of its E.M.D., contractual relationship, if any between the bidder and the liquidator had come to an end. It is, therefore, prayed that Ratnaprabha Sugars are not entitled to any relief.
In order to consider the issues, events relevant may be reproduced, although at the cost of repetition.
Advertisement callingthe tenders (last date 05-01-2004)
Tenders were opened.
Govt. accorded approval to acceptance of tender of Ratnaprabha Sugars.
Liquidator invited Ratnaprabha Sugars to deposit 25 per cent amount of Rs. 5,68,75, 000/-within seven days.
[WritPetitionNo.1278/2004was filed by MSC Bank on 20-02-2004]
Above communication of the Liquidator dated 17/23-02-2004was received by Ratnaprabha Sugars.
Ratnaprabha Sugars prayed for time extensionto deposit in view of Writ Petition No.1278/04filedby MSC Bank
Liquidator rejectedtime extension.
Ratnaprabha Sugars renewed the request for time extension.
Liquidator rejectedthe request of Ratnaprabha Sugars and forfeited EMD.
High Court granted status quo.
State Govt. grants consent to MSC bank and liquidator to sell the property with consent of the court.
Commissioner (Sugar)asksRatnaprabha Sugars to have a meeting on 11.7.2005 for discussionregarding deposit of amount and possessionof assets.
Commissioner (Sugar),informs the Collector-Liquidator that it is inappropriate to forfeitEMD of Ratnaprabha Sugars and that the decisionto cancel acceptance of tender, only if 25 % amount is not deposited from the date of decision of the court, upon consent terms to be filedby the MSC Bank and the liquidator.
Ratnaprabha Sugars requested the Collectorto accept the amount.
Civil Application No.4917/2006came to be filedby Ratnaprabha Sugars for directions to the Liquidator/ Collector to accept remaining amount.
Decisionto enter intocompromise at the meeting in the officeof the Commissioner (Sugar).
Letter of Ratnaprabha Sugars to Liquidator, requesting to accept Demand Draft of Rs.22.65crores.
Civil Application No.7710/2006filed by Ratnaprabha Sugars for directions to accept the amount.
Decisionto cancel salein favour of Ratnaprabha Sugars.
It is an admitted position that Ratnaprabha Sugars, as a bidder, had deposited an EMD of Rs. 10.00 lakhs, at the time of submitting its tender. Further developments are recorded hereinabove in the form of chronology of dates and events and those are not disputed. Although tenders were opened on 7.1.2004, acceptance of tender of Ratnaprabha Sugars was communicated to it by the Collector-Liquidator only on 23.2.2004. A copy of this communication produced with an affidavit in reply filed by Shri Bharat Nagarnaik, Joint Director (Sugar) on 27.7.2007 in Writ Petition No. 7907/2006, indicates in second paragraph, of Government having given its approval to accept bid of Ratnaprabha Sugars for Rs. 22.75 crores, by its communication dated 10.2.2004. By the communication dated 23.2.2004, the Collector-Liquidator has invited Ratnaprabha Sugars to deposit 25 per cent of the bid amount of Rs. 5.6875 Crores with the Collector-Liquidator within a period of about seven days ( )
Neither the counsel for Ratnaprabha Sugars, nor learned Government Pleader nor Counsel for the MSC Bank has drawn our attention to the terms and conditions of the tender notice, thereby indicating as to which of the terms and conditions were mandatory and which were not so mandatory and could be relaxed at the discretion of the Collector-Liquidator-the authority inviting tenders. But the use of the word "i. e. "about" "about" "about" in " the communication, indicates that the time was not of the essence of the contract.
A text of the tender notice dated 15.12.2003 is made available only with the affidavit filed on 27.2.2008 by Shri P.R. Shinde, on behalf of the Board of Liquidators, which indicates that 25 per cent of the bid amount, was required to be deposited in the Liquidator's office within seven days from provisional finalization of tender, as security deposit and if the bidder failed to so deposit, his tender was likely to be cancelled and the amount of EMD was to be forfeited. Balance 75% amount was to be deposited by successful bidder within 30 days from communication of final acceptance of tender, by the competent authority, whereafter title of the property was to be transferred to the bidder by the liquidator. In case of failure to so deposit, all earlier deposits were liable for forfeiture and the bidder was also to suffer cancellation of his tender. According to Advocate Shri P.R.Patil, M/s Ratnaprabha Sugars received this communication on 26.2.2004 at 13.30 hours. Such an endorsement is available at the left bottom of the communication, in the copy produced by the State. Writ Petition No. 1278/2004 was filed by MSC Bank on 20.2.2004 and from the communication dated 3.3.2004, by which M/s Ratnaprabha Sugars sought time extension, it is evident that M/s Ratnaprabha Sugars, by that time; was aware of Writ Petition No. 1278/2004 having already been filed by MSC bank. By the Writ Petition, before amendment; MSC bank had prayed for a writ of prohibition against Respondent Nos. 1 to 5 from transferring or dealing with the assets of the said sick sugar factory in any manner whatsoever with any third party. From the receipt of communication on 26th February 2004, the bidder certainly had seven days time to deposit the amount of 25 per cent and the dead line would have been 4.3.2004. On 3.3.2004, Ratnaprabha Sugars elected an option to request the Liquidator for some time extension to deposit the amount, which was not a small amount, in the light of pendency of writ petition No. 1278/2004, filed on 20.2.2004. It was a practical decision, in order to avoid an amount nearly of Rs. 6.00 crores getting locked, as a result of deposit and subsequent stay orders those may be clamped by this Court. It is a matter of record that on 24.3.2004, this High Court ordered statusquo. Reference in the communication dated 3.3.2004 to the registration number of the Writ Petition filed by MSC bank, is an indication of the fact that M/s Ratnaprabha Sugars had reasonable apprehension of possible stay orders by the court. It can, therefore, certainly be said that, had 25 per cent amount been deposited by Ratnaprbha Sugars, it would have remained locked in the litigation, till this day.
In fact, while considering the argument on behalf of either the State or the Liquidators that, Ratnaprbha Sugars have committed default in depositing the amount;that it has not shown readiness and willingness to perform its part of the contract, we must give a serious consideration as to whether the dispute regarding tenders for sale of assets of the sugar factory can be treated at par with a suit for specific performance. Although time table as appears in the tender notice dated 15.12.2003 is worded in the manner indicating that the time to deposit was mandatory, subsequent conduct of the authorities inviting tenders, leads us to an inference that time was not of the essence of contract. This is because; correspondence, whether Ratnaprbha Sugars should deposit the amount and if yes, when it should; was going on nearly for two years after the so called rejection of time extension and forfeiture of EMD, by communications dated 11.3.2004 and 16.3.2004, in response to the written requests of Ratnaprabha for time extension, vide communications dated 3.3.2004 and 12.3.2004. And if the time schedule for deposit was not mandatory, or in spite of being mandatory the authorities inviting the tenders were prepared to relax, after having so relaxed the time limit, we are afraid, now it is not open for the authorities to say, that with the forfeiture of EMD as indicated in the letter dated 16.3.2004, contractual relationship,if any;between the bidder and the liquidators had come to an end. In this context, we may point out that the communication dated 11.3.2004 simply informs rejection of time extension and further communication dated 16.3.2004 informs forfeiture of EMD. However, none of the two communications, informs the bidder that its tender was cancelled, as was possible, if term (vii) was to be construed and followed strictly. This term had granted liberty to the Liquidator to cancel the tender itself. But, the liquidator chose only to forfeit EMD, without cancelling the tender. There is nothing on record to indicate as to when the final acceptance or rejection of tender, by the competent authority, was communicated to bidder Ratnaprabha Sugars, except impugned decision dated 4.10.2006. Subsequent conduct on the part of the authorities, of inviting the bidder for discussion; gives clear indication, that the authorities were inclined to grant relaxation.
For subsequent conduct, we may refer to some details in some of the communications. In the documents filed with the notes of arguments by Advocate Shri P.R.Patil for Ratnaprabha Sugars, at compilation page 8, is a copy of communication dated 7.7.2005 by Commissioner (Sugar) to the President of Ratnaprbha Sugars. In the 4th paragraph, communication informs that MSC bank and liquidator have come to terms and the MSC bank has agreed to sale of the assets of the sick factory, with permission of the court. It further states that this agreement between MSC bank and the liquidator, was approved by the State, vide its communication dated 30.6.2005 and, therefore, it is expressed that there was no impediment in completing the transaction regarding sale of the assets of the sick sugar factory. This communication hints Ratnaprabha Sugars that it should deposit the sale proceeds for the purpose of taking possession of the assets of the sick factory, but without fixing any time for such deposit. On the contrary, letter concludes by asking the President, Ratnaprabha Sugars, to be available for meeting on 11.7.2005 at the office of Commissioner (Sugar). It appears that on 30.8.2005, the Commissioner (Sugar) informed these details to the Collector - Liquidator and instructed him that the MSC Bank and Liquidator should file consent terms in the High Court and after the decision of the High Court on the same, the bidder Ratnaprabha Sugars should be informed to deposit 25% of the bid amount within seven days. Paragraph 3 of this communication dated 30.8.2005 concludes, by informing the liquidator that it was improper to forfeit EMD of Ratnaprabha Sugars. Thus the conduct of the authorities indicates that they were willing to extend the time to deposit the bid amount, till the matter is free from "status-quo" clamped by this Court, vide its order dated 24.3.2004.
This is not a case, wherein M/s Ratnaprbaha Sugars showed an attitude of total unwillingness to deposit. By communication dated 1.6.2006 (Exh. K, page 82 in Writ Petition No. 7907/2006), Ratnaprabha Sugars informs the Collector-Liquidator that it is ready and willing to deposit the balance amount and, therefore, the consent terms (presumably between MSC bank and the liquidator) may be filed in the court and further action may be taken, after seeking approval from the court. Neither learned Counsel for the Liquidator/State authorities, nor learned Counsel for MSC bank claimed before us any consent terms, as agreed between them, having been filed before this Court and having successfully obtained relaxation of the status-quo. We presume that, no such action had taken place and since it was an agreement between the Liquidator and MSC bank, Ratnaprabha Sugars cannot be faulted with, if Ratnaprabha Sugars was indicated that it was to deposit the amount after liquidator and MSC bank seeking relaxation of status-quo, by filing consent terms before this Court. The communication dated 1.6.2006 from Ratnaprabha Sugars referred hereinabove, was a sort of reminder to the liquidator, copies of which were also marked to the Commissioner (Sugar) and Executive Director of MSC Bank, requesting to seek relaxation of status-quo and thus pave a way for Ratnaprabha Sugars to deposit the amount.
On 8.6.2006, Ratnaprabha Sugars filed Civil Application No. 4917/2006 in Writ Petition No. 7907/2006, seeking permission from this Court to deposit Rs. 22.65 crores (Rs.22.75 crores-Rs.0.10 crores EMD=Rs.22.65) crores) in the court and thereafter to direct the liquidator and the MSC bank to execute proper documents, transferring the title and possession of the assets of the sick sugar factory in favour of Ratnaprabha Sugars, by modifying the status-quo dated 24.3.2004. This application did not remain uncontested and was ultimately allowed to be withdrawn on 28.11.2006. By communication dated 9.8.2006 (Exh.P, page 99 of WP 7907/2006), Ratnaprabha Sugars seems to have forwarded a copy of demand draft in favour of the Official Liquidator for Rs. 22.65 crores towards full and final payment of tender property, as agreed in the meeting dated 1.8.2006, thereby indicating readiness of payment, if consent papers, as agreed in the meeting dated 1.8.2006; were submitted before the High Court.
By another civil application No. 7710/2006 filed on 28.8.2006, Ratnaprabha Sguars has again shown readiness and willingness to deposit the amount in this Court. This was because, due to lack of communication between the parties, consent terms were not filed and thus way was not paved for direct deposit with the liquidator, in spite of decision at the meeting dated 1.8.2006. We have disposed of this Civil Application, without any orders as the matter went for full-fledged contest.
A copy of decision dated 1.8.2006 is at Exh. O, page 97 of Writ Petition No. 7907/2006. It appears that a meeting was held on 1.8.2006 under the chairmanship of Commissioner (Sugar) at his chamber. Apart from the then Commissioner (Sugar) Shri Rajgopal Deora, five more individuals were preset at the said meeting. Shri D.B.Gavit, Joint Director (Admn.) Maharashtra State, probably represented the State. Executive Director of MSC Bank was the third participant. The sick sugar factory was represented by the liquidator-Collector, Parbhnai. Shri Raosaheb Jamkar was present on behalf of bidder Ratnaprabha Sugars. M.L.A. Shri Durani was also present, who is now one of the members of the Board of liquidators of the sick sugar factory, appointed on 13.12.2007. At that time, in all probability, he was participating in the meeting as a representative of the members of the sugar factory. The resolution states that the Commissioner (Sugar) apprised the members present, of all the events from the date of order of liquidation of sick sugar factory, passed on 14.5.2002. (In fact, it should be 15.5.2002) Thereafter, the decision of the meeting was unanimous. It was agreed that MSC bank, liquidator, union of workers and Ratnaprabha Sugars should jointly file consent terms in the High Court of Bombay, Bench at Aurangabad. MLA Shri Durani had undertaken responsibility to withdraw civil application (registration number or details of civil application are not referred to). It was further resolved that, after the High Court passes appropriate orders on the consent terms, the bidder should issue demand draft in favour of the liquidator, towards the price of the assets of the sick sugar factory, failing which, it would be presumed that the bidder is not willing to purchase the assets and further action would be taken. Lastly, it was agreed that the sale proceeds of the assets of the sugar factory, as also sale proceeds of sugar stock, should be credited in a joint account of the authorised officer/representative of the MSC bank and the liquidator, and the same should be disbursed by the liquidator, in accordance with law.
From the resolution, it is evident that even on 1.8.2006, neither the liquidator nor the State, had taken final decision of rejecting tender of Ratnaprabha Sugars. On the contrary, even by this resolution, time to deposit was extended upto a period of two days, after the High Court accepts the consent terms and passes appropriate orders on the same.
Learned Government Pleader Shri Khandare has placed reliance upon the observations of the Honourable Supreme Court, in the matter of H.U.D.A. and Anr. v. Kewal Krishan Goel and Ors. , which read as follows:
The earnest money is a part of purchase price when the transaction gets through and the same is forfeited when the transaction falls through by reason of the default or failure on the part of the vendee. In this case under the allotment in question an allottee was required to deposit 10% of the tentative price of the land as earnest money which is given to bind the contract. The allottee having accepted the allotment and having made some payment on instalment basis then made the request to surrender the land, has committed default on his part and therefore the competent authority would be fully justified in forfeiting the earnest money which had been deposited and not the 10% of the amount deposited as held by the High Court. The High Court was totally in error in issuing the direction in question on the ground that the respondents were not in a position to deliver the possession of the land to the allottee.
In fact, Government Pleader Shri Khandare wanted us to accept the ratio, as applicable to our case, to the effect that forfeiture cannot be questioned on the ground of authority's alleged failure to deliver developed land to the allottee, when the letter of allotment stipulated no period for such delivery and when reasonable period could not be said to have lapsed for delivery.
We are unable to appreciate as to how ratio can be applicable to our case. In the tender notice dated 15.12.2003, although some time table is fixed for depositing earnest, 25 per cent bid amount and balance 75 per cent, no time is fixed for delivery of possession and title in favour of the bidder. This is not a case, wherein Ratnaprbha Sugars is asking for cancellation of bid, because of its inability to pay any part of consideration. Ratnaprabha Sugars was simply asking time to deposit, not because it had no capacity to pay, but because the delivery of possession was obstructed due to court orders. It has shown its williness to pay, in case the liquidator and the MSC bank sought relaxation of the "status-quo" clamped by the court. Moreover, in the matter at hands, liquidator and the State authorities have shown inclination to extend the time to deposit, may be because the parties were negotiating a possible solution in the fact-situation, so that the sick sugar factory can be started for the benefit of all concerned.
In the reported matter, the question that arose for consideration was, whether the allotting authority was entitled to forfeit the earnest money deposit or only to forfeit 10% of the total amount deposited by the allottee. The question before us is whether the communication dated 16.3.2004 has put the shutters down to the offer of Ratnaprabha Sugars towards the auction of the assets of the sick sugar factory. The liquidator and the State authorities themselves have, by their subsequent actions and developments; indicated that the shutters were not so down, on the contrary the liquidator was informed by the Commissioner (Sugar) that it was inappropriate to forfeit the EMD.
Advocate Shri Chandak was critical about the actions of the MSC bank, but even the liquidator and the State authorities cannot be free from the blame of fluctuating decisions and at times, subsequent decision is contrary to earlier decision. The fluctuations are available in the factual matrix already reproduced, but we may, at the cost of repetition summarize some details. Initially, sick sugar factory was given on lease to Vaidyanath sugar factory from June 2002 to January 2004. In December 2003, advertisement was issued, inviting tenders for sale of the assets of the sick sugar factory. In March 2004, time extension was refused to Ratnaprabha Sugars and its EMD was decided to be forfeited. But, in July 2005, the same party was invited for discussion of modalities of payment and transfer of assets. In 2006, a compromise was tried to be arrived at and still, option of sale of the assets in favour of Ratnaprabha Sugars was kept open. Yet, in October 2006, that decision was cancelled and again it was decided to lease out the sick sugar factory for running (impugned decision dated 4.10.2006). Again in June-July 2007, a tender notice was floated for sale of sick factory (in spite of "status-quo") still being in force.) Thus, even the liquidator and the State have completed a circle, to come to a decision to lease out and again to sell the sick sugar factory, after developments during 2-1/2 years i.e. January 2004 to October 2006.
Although Advocate Shri P.R.Patil for Ratnaprabha Sugars has placed reliance upon observations in paragraph 10 of the judgment of the Hon'ble Apex Court in S. Shanmugavel Nadar v. State of Tamil Nadu , which are regarding doctrine of "Merger", on going through those observations, we feel that such a reliance is neither relevant nor necessary. We have already indicated that, by communication dated 30.8.2005, the Commissioner (Sugar) had informed the Collector-liquidator that it was inappropriate to forfeit the EMD and the decision to cancel the tender of Ratnaprabha Sugars could be taken, only if, there was default in depositing 25 per cent amount.
Considering all the factual developments, it is evident that the liquidator and the State authorities had kept the issue open. In fact, there is no forfeiture of EMD and practically, decision dated 4.10.2006 is the only occasion, when the liquidator and the State authorities decided to reject the tender of Ratnaprabha Sugars, for the reasons recorded therein. We do not think that it is open for the liquidator and the State authorities to say, merely to support their decision dated 4.10.2006; that, with forfeiture of EMD by communication dated 16.3.2004, contractual relationship, if any, between the bidder and the liquidator had come to an end.
The decision of forfeiture of EMD was waived by the authorities calling tenders and, therefore, first part of point No. 2 is answered in the affirmative and later half in the negative.
We have already expressed our reservations to the proposition of treating the transaction regarding acceptance of tender for purchase of assets of the sugar factory under liquidation, at par with a suit for specific performance and thus, to the application of principle of "readiness and willingness to perform its"readiness and willingness to perform its"readiness and willingness to perform its part of contract by a parity" of contract by a parity" of contract by a parity". But, if at all such an analogy is to be applied, we still feel that the same does not defend the cause of Ratnaprabha Sugars. We have already discussed the actions on the part of Ratnaprabha Sugars, indicating its willingness to complete the transaction, although, being scared of the litigation and possible stay orders, Ratnaprabha Sugars had prayed for time extension to deposit the huge amount. By their conduct, the authorities inviting the tenders, have treated the time to be not of the essence of the contract. By granting time extension, they have waived time table, if any; for deposit of 25% and 75% of the bid amount. They have invited Ratnaprabha Sugars for negotiations, although the obstruction was felt because of legal action initiated by MSC bank against the liquidator and sick sugar factory. Even after negotiations, Ratnaprabha Sugars was expected to deposit the amount after certain contingencies being complied with by MSC bank and the liquidator which, in fact, were never complied with and, therefore, in such a situation, it may not be proper to say that Ratnaprabha Sugars is defaulting bidder and, therefore, it has no right to seek specific performance, enforcement of tender transaction, pursuant to tender notice.
Point No. 14 (a) is, therefore, answered in the negative.
Learned Government Pleader has placed reliance upon observations of the Supreme Court in the matter of Dr. Rai Shivendra Bahadur v. Governing Body , from paragraph No. 5 to following effect:
In order that mandamus may issue to compel the respondents to do something it must be shown that the Statutes impose a legal duty and the appellant has a legal right under the Statue to enforce its performance.
Learned Senior Counsel as well as learned Government Pleader, while arguing that bidder Ratnaprabha Sugars is defaulter, have treated the matter, as if Ratnaprabha Sugars is claiming specific performance of the contract. If there is a contract, there are contractual rights. There is no denial that the liquidator and the State authorities invited tenders for sale of the assets of the sick sugar factory. They have also accepted EMD of Rs. 10.00 lakhs from Ratnaprabha Sugars. By their conduct, they have given an impression that time table for depositing balance amount is waived and then all of a sudden on 4.10.2006, they have taken "about turn" that the factory is to be leased out and not to be sold.
Advocate Shri Patil for Ratnaprabha Sugars, has placed reliance upon purchase order, a copy of which is produced at page 14 of the file of written arguments, to point out that it has already placed purchase order with Thermodyne Technologies Pvt. Ltd., Chennai, for material worth Rs. 21.8 crores, for the purpose of starting sick sugar factory. It has also prepared an estimate of initial expenditure that will be required to be incurred for starting functioning of the sick factory and according to Advocate Shri Patil, it is, therefore, not open to the liquidator and State authorities, to withdraw from the tender proceedings.
We do not think this to be a case, where Ratnaprbha Sugars, without having any right, is seeking court assistance by exercise of its plenary powers. The liquidator and the State authorities having indicated, by multiple number of actions, possibility of finalization of tender of Ratnaprbha Sugars and having accepted EMD, it is not open for them to say that no right has accrued in favour of Ratnaprbha Sugars to seek a mandate against them.
30. Point No. 1. Whether the decision dated 04.10.2006 by State is bad in law because:
(a) committee was not competent to take such a decision.
(b) principles of natural justice were not followed.
(c) the same is unreasonable.
(d) decision is malaflde.
(e) State/liquidator are estopped from cancelling bid of Ratnaprabha.
This point arises because of Writ Petition No. 7907/2006, which poses a challenge to the decision dated 4.10.2006 by the State. It appears that on 4.10.2006, a meeting was held, of "Mantri Samiti" "Mantri Samiti" "Mantri Samiti" (Ministers' Committee) under the chairmanship of the Hon'ble Minister for Cooperation. It was attended by Finance Minister, State Minister for Cooperation, Chairman, Maharashtra State Cooperative Bank, Principal Secretary, Department of Cooperation and Marketing, and The Commissioner (Sugar) as a Member Secretary of the Committee. It is also said that, representatives of concerned sugar factories, tenderers, banks or their representatives were present. Decisions on as many as seven subjects were taken and subject regarding sick sugar factory was at serial No. 6. The resolution says that the tenders were invited for sale of the assets of the sugar factory. Accordingly, approval was granted on 10.2.2004 for sale of the sick sugar factory for Rs. 22.75 Crores. The MSC bank has indicated its objection to the sale of the property, by filing writ petition in Aurangabad Bench of Bombay High Court. (Reference is probably to WP No. 1278/2004). This Court has ordered status-quo, in the said writ petition. Thereafter, tenderer Ratnaprabha Sugars, Union of Workers, individuals Sarvashree Keshavrao Survase and Ingle have filed independent writ petitions. Taking into consideration these details, it is decided to cancel the tender. All the writ petitions are kept for hearing on 6.10.2006. It was resolved that, after vacation of status-quo by the High Court, action should be taken for leasing out the sick sugar factory.
In order to claim that the decision of the Government or the state authorities, always ought to be reasonable, even if that be a policy decision; Advocate Shri P.R.Patil for Ratnaprbaha Sugars has placed reliance on certain observations in the judgment of Reliance Energy v. MSRDC Limited . To claim that the decision, if it fails to satisfy the test of reasonableness; would be required to be struck down as unconstitutional; he has referred to following observations, in paragraph 36.
...Time has come, therefore, to say that Article 14 which refers to the principle of `equality' should not be read as a stand alone item but it should be read in conjunction with Article 21 which embodies several aspects of life. There is one more aspect which needs to be mentioned in the matter of implementation of the aforestated doctrine of "level playing field". According to Lord Goldsmith, commitment to the 'rule of law' is the heart of parliamentary democracy. One of the important elements of the `rule of law' is legal certainty. Article 14 applies to government policies and if the policy or act of the Government, even in contractual matters, fails to satisfy the test of "reasonableness", then such an act or decision would be unconstitutional.
In paragraph 37 of the judgment, the Apex Court has borrowed observations in paragraphs 14 and 15 from its earlier judicial pronouncement in the matter of Union of India v. International Trading Company 2003 (5) SCC 467, which run;
14. It is trite law that Article 14 of the Constitution applies also to matters of governmental policy and if the policy or any action of the Government, even in contractual mattes, fails to satisfy the test of reasonableness, it would be unconstitutional.
15. While the discretion to change the policy in exercise of the executive power, when not trammelled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for a discernible reason, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualised than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness.
Some reliance is also placed upon observations in the matter of M.S. Gill v. Chief Election Commissioner , to the effect:
When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise.
Advocate Shri Patil has also placed reliance on an Article by Justice Markandey Katju, reported in 2005 SCC 25, Journal, for the purpose of drawing attention of this Court to "Wednesberry Principle" and claiming that the decision to cancel the action in favour of his client for the purpose of leasing out the sick sugar factory, is against the said principle.
Observing that "Wednesberry Principle" is one of the non statutory controls, it is said;
"The Wednesberry Principle" is often misunderstood to mean that any administrative decision, which is recorded by the court, to be unreasonable, must be struck down. The correct understanding of the Wednesberry Principle is that a decision will be said to be unreasonable in the Wednesberry sense, if;
(i). it is based wholly on irrelevant material or wholly irrelevant consideration.
(ii). it has ignored a very relevant material which it should have taken into consideration, or
(iii). it is so absurd that no sensible person could have ever reached it.
Coming to the facts of the case on hands, Advocate Shri P.R.Patil tried to demonstrate that the decision of cancelling the bid of Ratnaprabha Sugars to be unreasonable. Some of the details regarding this, are already discussed in paragraph 18 of the judgment while dealing with contention of Advocate shri Chandak that the sick sugar factory is eligible/entitled to financial package for revival, either from NABARD, State or Union. However, the discussion is limited to non viability of running the sick sugar factory on lease and possibility of better recovery for satisfaction of the dues of the creditors of sick sugar factory. We may only say here that, by the time the parties went for full-fledged arguments, the MSC bank, represented by Advocate Shri Dhorde, some of the members/cane-growers represented by Advocate Shri V.D. Salunke and the workers' union represented by Advocate Shri S.T. Shelke, were also opposed to cancellation of the bid, as an unreasonable decision. The members and the workers are in favour of the auction, provided sugar factory is run by the auction purchaser and the purchaser does not carry away the machinery as scrap for further sale. In the file of written arguments submitted by Advocate Shri Patil, at internal pages 38/39, is the record of minutes of pre-tender meeting dated 9.7.2007. Of course, these are the minutes in connection with fresh tenders which were called by advertisement dated 27/28-6-2007. Paragraph 4 of the minutes refers to request by the tenderers that, there should not be a condition to run the sugar factory at the location where it is, at present. The request is rejected, by taking into consideration the difficulties in shifting, as also opposition by local people to such shifting. It is clarified that this condition of running the factory at the same location, cannot be relaxed. So far as auction in favour of Ratnaprabha Sugars is concerned, Advocate Shri Patil has made it clear across the bar that Ratnaprabha Sugars would be running the said factory at the same location and by continuing the same workers of the factory, who are permanent/regular workers of the factory.
In order to substantiate his argument that the decision to cancel the bid is unreasonable, Advocate Shri Patil has taken us through the said decision and has pointed out that there are very few reasons in the text of the decision. By relying upon observations in the matter of M.S.Gill (supra)M.S.Gill (supra)M.S.Gill (supra), Advocate Shri Patil has already expressed objection to reasons, if any, to which new Board of Liquidators or the State authorities may add, in order to support the decision to cancel the bid in favour of Ratnaprbha Sugars. From the text of the decision, only following reasons can be gathered;
(i). MSC bank has expressed opposition for transfer of the assets of the factory.
(ii). Hon'ble High Court has ordered status-quo in the Writ Petition filed by MSC Bank (WP1278/2004).
(iii). Tenderer M/s Ratnaprabha Sugars and workers union of the factory have filed independent writ petitions (7097/2006 and 330/2005).
(d). Writ Petitions are also filed by Shri Keshavrao Surwase and Krishna Ingle (WP 6092 & 6592 of 2006).
We may state that, with the passage of time, the development of events and continued stagnation of the sugar factory, all, except petitioners in Writ Petition No. 6092/2006, have shown willingness to confirm the sale in favour of Ratnaprabha Sugars, provided the factory is being run at the same location. The workers have mainly opposed transfer of all sale proceeds in favour of the bank and they are not interested in opposing the confirmation of the sale. Beyond the reason of filing these writ petitions, there is no other reason recorded for cancellation of the bid in favour of Ratnaprabha Sugars. Advocate Shri Patil has given a list of reasons, which ought to have been taken into consideration by the committee, but which the committee has failed to consider.
(i). There is no likelihood of financial package from NABARD for restructuring of sick sugar factory.
(ii). As submitted by Advocates Sarvashree Dhorde and Salunke, experiment of trying to run the factory on lease has not worked successfully.
(iii). Ratnaprabha Sugars offered more than reasonable price.
(iv). If factory is run on lease, it is not likely to have surplus, sufficient to satisfy even the annual interest that accrues on the principal amount.
Insofar as non-availability of NABARD package is concerned, it is already discussed while dealing point No. 3 and, therefore, we do not wish to further discuss the same here. By recording a finding on point No. 3, we have already indicated that the petitioner in Writ Petition No. 6092/2006 are hoping against the hope. The process of securing some financial package had commenced sometime in 2004 and nothing has come through, in spite of lapse of four years.
Advocate Shri Salunke had very bitter comments about appointment of the new board of liquidators. According to him, board of liquidators is not in a position to run the factory as none of the members of the board has any experience in that region. Handing over of sugar factory to the board of liquidators, according to Advocate Shri Salunke; is likely to cause more hardship, because the appointment of the board of liquidator is with a view to accommodate some political persons.
With the affidavit by Shri P.R.Shinde, made on behalf of the Board of Liquidator, on 27.2.2008, he has filed a project report, indicating that for starting crushing season, initial expenditure of Rs. 2.63 crores will be required. He has given an account of total income of Rs. 26.3431 crores, if the factory is run with full crushing season and expenditure of Rs. 25.25 crores, without taking into consideration the initial expenditure of Rs. 2.63 crores and has thus shown net profit of Rs. 1.0931 crores. The calculation is given for the purpose of pleading that the board of liquidators may be in a position to run the factory and repay the debts. Even considering the principal amount as on 31.3.2000, i.e. Rs. 20.67 crores, the annual interest at contractual rate, calculates to Rs. 4.15715 crores. It is thus difficult to presume that the board of liquidators will be in a position to run the factory in such a manner that there would remain reasonable surplus for satisfying the debt and ensuring that the factory is free from the debt within reasonable time, say ten years.
The decision does not categorically say that the board of liquidators is going to run the factory, but it is proposed to be leased-out after relaxation of status-quo by the High Court. In order to demonstrate that this decision is reasonable, no material is brought on record to show that this factory was run in a manner beneficial to interest of all (i.e.factory itself, agriculturists and workers), when it was leased out to Vaidyanath Sahakari Sakhar Karkhana Limited, nor the details, such as, balance sheets of other cooperative sugar factories;already being run on lease, are brought on record to demonstrate a possibility of running the sick sugar factory profitably, if given on lease.
So far as reasonableness of price is concerned, Advocate Shri Patil has filed a table at page 75 of his file of arguments, demonstrating comparison of price offered and accepted for different sugar factories. The list contains 5 sugar factories as below:
(i) Kalambar Sahakari Sakhar Karkhana Limited.
(ii) Jijamata Sahakari Sakhar Karkhana Limited.
(iii) Sudhakarrao Naik Sahakari Sakhar Karkhana Ltd.
(iv) Shankar Sahakari Sakhar Karkhana Limited.
(v) Godavari Dudhna Sahakari Sakhar Karkhana Ltd.
Kalambar, Jijamata and Godavari, are the sugar factories, having 1250 TPD capacity, whereas Sudhakar and Shankar, are the factories with 500 TPD capacities. For the purpose of comparison, we must bear in mind that on 7.1.2004, Ratnaprabha Sugars has offered 22.75 crores for Godavari Dudhna factory, and which offer is now increased to 23.75 crores. Kalambar and Jijamata factories were auctioned in July-August 2007 respectively. Those have fetched prices of Rs. 14.00 crores and 15.15 crores respectively. The point to be pondered is, whether the proposition that Godavari-Dudhna factory would fetch more price, if the bids for sale are now invited, is sustainable. If, with the passage of time, prices have gone up, the fact that Godavari Dudhna is not functioning since January 2004, is bound to reduce the price. Ratnaprabha Sugars have offered much higher price than the prices fetched by Kalambar and Jijamata factories, which are the factories of equal TDP capacity. Sudhakarrao and Shankar cooperative sugar factories are sold in July-November 2007. It must be remembered that, those are the factories with double TDP capacity than our sick sugar factory. Yet, those have fetched price of Rs. 9.00 crores and Rs. 19.25 crores, respectively.
Although Advocate Shri Chandak had pointed out to us that sick sugar factory is located on quite a large piece of land admeasuring 94.5 hectares, it must be remembered that even the other factories must be having a large chunk of land under its plant, godowns and space required for parking vehicles, which fetch sugar-cane to the factory. The area may be less or more, it cannot be said that only sick sugar factory is possessing large chunk of land and other factories must not be.
The table referred by Advocate Shri Patil, showing comparative study of the prices fetched by the factories of equal TPD capacity as that of sick factory or even double TPD capacity as compared to sick sugar factory, indicates that the price offered by Ratnaprabha Sugars is not only reasonable, but quite handsome. It must, therefore, be said that the impugned decision dated 4.10.2006, must fail on the test of Wednesberry's Principle, since it has taken into consideration only one ground that the litigations are filed about the sick sugar factory. But, the decision has not taken into consideration, the relevant factors, such as, whether running the sick sugar factory on lease would be beneficial to all interested, whether, by that mode, factory will be able to come out of its debts and whether the price offered by Ratnaprabha Sugars, is reasonable. The decision, therefore, must be branded as "unreasonable", since the Committee has not addressed itself to the relevant aspects which ought to have been duly considered.
Part (c) of point No. 1 is, therefore, answered in the affirmative.
The decision dated 4.10.2006 is also attacked by learned Counsel for the bidder, by contending that State/Liquidator are estopped from cancelling the bid of Ratnaprabha. Some details of this aspect have already occurred in our discussion on issues No. 2 and 14 together in para 29 ante.
Shri Patil has referred to an article by Shri Salman Khurshid, reported at 1981 (3) SCC (Jour) 33 and for the purpose of supporting his arguments on the point of estoppel, on the observations in the article, which are based upon the judgment of the Supreme Court in the matter of Motilal Padampat Sugar Mills v. State of U.P. .
Instead of relying upon the contents from the article, we have referred to the case which is discussed in the article and observations in para 19 are felt to be relevant to the matter at hands. We quote:
When we turn to the Indian law on the subject it is heartening to find that in India not only has the doctrine of promissory estoppel been adopted in its fullness but it has been recognised as affording a cause of action to the person to whom the promise is made. The requirement of consideration has not been allowed to stand in the way of enforcement of such promise. The doctrine of promissory estoppel has also been applied against the Government and the defence based on executive necessity has been categorically negatived. It is remarkable that as far back as 1880, long before the doctrine of promissory estoppel was formulated by Denning, J., in England, a Division Bench of two English Judges in the Calcutta High Court applied the doctrine of promissory estoppel and recognised a cause of action founded upon it in the Ganges Mfg. Co. v. Sourujmull (1880) ILR 5 Cal.669). The doctrine of promissory estoppel was also applied against the Government in a case subsequently decided by the Bombay High Court in Municipal Corporation of Bombay v. Secy. of State (1995) ILR 29 Bom.580)
After considering Indo Afgan Agency's case AIR 1968 SC 713, the Hon'ble Court has reproduced the conclusions recorded in earlier judicial pronouncement in para 24 of the judgment and we quote:
Under our jurisprudence the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an exparte appraisement of the circumstances in which the obligation has arisen.
The Supreme Court recorded its observations in the M.P.Sugar Mill's case as under:
The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and in fact, the promisee, acting in reliance on it, alters his position, the Govt. would be held bound by the promise and the promise would be enforceable against the Govt. at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law. Every one is subject to the law as fully and completely as any other and the Government is no exception.
In the matter at hands, the liquidator, as representative of the State, is the party which has offered the sugar factory for sale and which has accepted the amount of Rs. 10.00 lakhs, by way of E.M.D. The matter does not end here. Ratnaprabha Sugars were invited to negotiate. They were granted relaxation for depositing the amount, may be in the light of the litigations filed against the said sugar factory. Advocate Shri Patil has pointed out that Ratnaprabha Sugars had booked an order for material worth Rs. 21.8 Crores in December 2006 with Thermodyne Technologies Pvt. Ltd., Chennai. It must be said that there have been sufficient representations from the liquidator/ State authorities to Ratnaprabha Sugars that its tender has been accepted and the bidder seems to have acted upon the promise by taking further steps i.e. by placing an order for goods worth Rs. 21 Crores.
It was argued by Advocate Shri Chandak that Ratnaprabha Sugars has already entered a deal with Renuka Sugars Ltd. and, therefore, it has not deposited 25% amount because deal was still not struck with Renuka Sugars. Shri Patil has submitted that M/s Renuka Sugars is a sister concern or rather mother concern of Ratnaprabha Sugars. Presuming it for the sake of argument that Renuka Sugars is a third party, even that situation renders support to the claim of Ratnaprabha Sugars regarding estoppel. If because of assurances by liquidator/ State authorities that tender of Ratnaprabha Sugars is likely to be accepted, Ratnaprabha Sugars have either placed orders for goods on their own or if Ratnaprabha Sugars has entered into further deal with third party, say Renuka Sugars, still that would not adversely affect the plea of estoppel relied upon by M/s Ratnaprabha Sugars.
For these reasons, we are of a considered view that now, it is not open for the liquidator/ State authorities to back out from the tender process based on the tender notice in December 2003, more so when now almost all the parties are willing to consent to the acceptance of tender of M/s Ratnaprabha Sugars.
Part (e) of point No. 1 is, therefore, answered in the affirmative.
Advocate Shri Patil has challenged the competence of the Committee itself and the challenge is tried to be repelled by learned Senior Counsel for the newly appointed board of liquidators and by learned Government Pleader, by stating that by virtue of MCS Act, the State has pervasive control over the affairs of the sick sugar factory, because by assisting the sugar factory financially, being a cooperative factory, the State has a control, although through its officers and the learned Government Pleader has also placed reliance upon Section 79-A of the MCS Act, as a source of the powers to control the affairs of the specified society/sugar factory. Sub-section (1) of Section 79-A of the Act, which was relied upon, reads thus;-
79-A. Government's power to give directions in the public interest etc.:
(1). If the State Government, on receipt of a report from the Registrar or otherwise, is satisfied that in the public interest or for the purposes of securing proper implementation of cooperative production and other development programmes approved or undertaken by Government, or to secure the proper management of the business of the society generally, or for preventing the affairs of the society being conducted in a manner detrimental to the interests of the members of the depositors or the creditors thereof, it is necessary to issue directions to any class of societies generally or to any society or societies in particular, the State Government may issue directions to them from time to time, and all societies or the societies concerned, as the case may be, shall be bound to comply with such directions.
From the text of the Section itself, it is evident that the State government has powers `to give`to give`to give directions.' We are unable to find anything in the language of the section, which enables the State Government `to take a decision'to take a decision'to take a decision' itself on the affairs of the specified cooperative society, or on behalf of the liquidator appointed, while the society is under liquidation. The section can be read as under;-
The State Government has the powers to give directions. It can do so, upon receipt of a report from the Registrar or otherwise. Before issuing `directions', the State Government must be satisfied that issuing of directions is necessary, either in the public interest or for securing proper implementation of cooperative production, or proper implementation of development programmes approved/undertaken by the Government, or for proper management of the business of the society, or for preventing the affairs being conducted in a manner detrimental to the interest of members /depositors / creditors.
It must be borne in mind that the State has powers to issue directions. Here, if the Committee of Ministers represents the State, it has taken a `decision' on behalf of the society or liquidator that the tender of Ratnaprabha Sugars should be rejected. It is difficult to swallow that the government is empowered so `to take decision'`to take decision'`to take decision' itself. We have already discussed the text of the impugned decision in the earlier part of this judgment. Merely because the litigations are pending about the sick sugar factory, the tender is cancelled and it is decided to run the factory on lease, after vacation of stay by the High Court. On reference to the language of Section 79(A), it can be seen that, directions contemplated to be issued by the government are during the period the factory/society is functioning. Only then, directions can be issued for proper implementation of cooperative productions or development programmes, or for preventing the affairs of the society being conducted in a manner detrimental to the interest of the interested parties. In the matter at hands, neither there is any production, since the factory is closed, nor any development programme approved/undertaken by the State is to be implemented, nor it can be said that the affairs of the society are being conducted in a manner detrimental to all. The reason is, factory has come to a grinding halt.
We are afraid, the Ministers Committee could have been competent to issue directions to the liquidator, as the substitute of the members, to run the factory on lease, or to take certain steps so that it can go ahead with the production, profitably. It could have directed the liquidator not to effect the sale. What is done by the committee, and the manner in which it is done, shows that the committee has stepped into the shoes of the liquidator and cancelled the bid of Ratnaprabha Sugars.
We must say that the Committee was not competent to do so and, therefore, part (a) of point No. 1 is answered in the affirmative.
Having held the decision by the Ministers Committee dated 4.10.2006 to be bad in law on counts (a), (c) and (e) of point No. 1, we find it needless to discuss the reasons or to record findings on parts (b) and (d) of point No. 1. Suffice it to say that, although decision dated 4.10.2006 says in different terms that representatives of the bidders were also present, it does not say that the representatives were given a liberty of being heard. So far as malafides are concerned, although fluctuating decisions have demonstrated instability in the policy and insensitive approach towards the welfare of the agriculturists and the workers, there is no sufficient material to record a finding that the decision is `malafide'. Although the impugned decision may smell of political undercurrents, that may not be sufficient to record so harsh a finding that the same is malafide.
For these reasons, parts (b) and (d) of point No. 1 can be considered to be answered as ```yes''' and ```not proved''' respectively.
31. Point No. 9: No. 9: No. 9: Whether the Securitization Act has an effect overriding the provisions of the MCS Act ?
Point No. 11: No. 11: No. 11: Whether the MSC bank is entitled to interest from the date of appointment of the liquidator (15.5.2002), `only' at the rate that may be determined by the liquidator ?
By relying upon Section 105 (1) (e) of the MCS Act, so also Rule 91 of the MCS Rules, it is pleaded on behalf of the liquidator, as also the workers; that the MSC bank is not entitled to interest on the principal amount, at contractual rate, from the date of appointment of the liquidator. The said two provisions read thus;
105. Powers of the liquidator:- (1) The liquidator appointed under Section 103 shall have power, subject to the rules and the general supervision, control and direction of the Registrar:
(e) to investigate all the claims against the society and, subject to the provisions of the Act, to decide questions of, priority arising out of such claims, and to pay any class or classes of creditors in full or ratable according to the amount of such debts, the surplus being applied in payment of interest from the date of liquidation, at a rate to be approved by the Registrar, but not exceeding the contract rates.
The portion underlined in the quotation above, clearly indicates that, after satisfying all the debts of various classes of creditors, if any surplus remains, then only the same is to be applied for satisfaction of interest over the principal amount from the date of liquidation and the rate of interest is required to be determined by the liquidator, subject to approval of the Registrar.
Rule 91. Interest on amounts due form a society underiqluidation:
The creditor of a society, which is being wound up, may apply to the liquidator for payment of interest on any debt due from the society up to the date of Registrar's order for winding up. The rate at which interest shall be paid, shall be, in the case of Maharashtra Cooperative Bank or a Co-operative bank permitted by the Registrar to finance the societies, the contract rate and in any other case, the rate which may be fixed by the Registrar which shall not exceed the contract rate.
Provided that, if any surplus assets remain after all the liabilities, including liabilities on shares, have been paid off. Further interest on such debts at a rate to be fixed by the Registrar but not exceeding the contract rate may be allowed to the creditors from the date mentioned above upto the date of the repayment of the principal.
From the text of Rule 91, it is evident that the MSC bank is entitled to interest at contractual rate till the date of appointment of the liquidator. However, thereafter the creditors are entitled to interest, only if there is surplus remainder after satisfying all the liabilities, including liabilities on shares. So far as interest on the principal amount is concerned, the same is required to be paid at the rate fixed by the liquidator, subject to approval of the Registrar. Here also, contractual rate is the upper limit. But, since the payment of interest for the period from the date of appointment of the liquidator is at the rate to be fixed by the Registrar and only if surplus remains after satisfying all the liabilities, it was submitted that even the MSC bank shall not be entitled to any interest from the date of appointment of the liquidator, unless there is surplus remainder from the sale proceeds of the assets and sugar stock and that too, MSC bank will be entitled to the rate of interest, as may be determined by the liquidator/Registrar and not necessarily at the contractual rate.
Taking into consideration this position, respective learned Counsel, representing the State, liquidators and workers, have claimed that, unless there is surplus remainder, after satisfying all the liabilities, even the MSC bank shall not be entitled to any amount towards interest from the date of liquidation. As against this, it was contended by Shri Dhorde, learned Counsel for the MSC bank, that the provisions of the Securitization Act shall prevail over these limits prescribed by the MCS Act and rules thereunder and that is how the question arose, whether the Securitization Act would prevail over the provisions of the MCS Act.
In order to claim that the Securitization Act shall have an overriding effect, Advocate Shri Dhorde has placed reliance upon Sections 34, 35 and 37 of the Securitization Act. Section 34 is pertaining to bar of jurisdiction and civil courts are barred from entertaining any suit or proceedings in respect of any matters, which a Debt Recovery Tribunal or Debt Recovery Appellate Tribunal is empowered by or under this Act, to determine. Section 34, in the real sense; does not speak anything about the overriding effect of the Securitization Act. Sections 35, 37 are relevant and those can usefully be reproduced hereinbelow.
35.The provisions of this Act to override other laws.-
The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
37. Application of other laws not barred0-
The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.
On going through the text of the two provisions, it is evident that even Section 37 does not create any bar to the applicability of the provisions of other statutes. On the contrary, it clarifies that the provisions of the Securitization Act and rules thereunder shall be in addition to the provisions of any other law for the time being in force. The section, therefore, is required to be believed, as laying down that the provisions regarding securitization, reconstruction of financial assets and enforcement of security interest as available under the Securitization Act, are the remedies available in addition to the remedies already provided by other statutes. By making available special provisions, the remedies already available are not at all taken away.
As rightly pointed out by learned Government Pleader Shri Khandare, overriding effect given to the provisions of the Securitization Act, is not in an unbridled manner, when the provision regarding overriding effect begins with non-obstante clause, "Notwithstanding anything contained in any other law...". From reading Section 35 it is evident that the question of overriding effect is not required to be considered till the time there is inconsistency between the provisions contained in any other law and the provisions of the Securitization Act. This is not a case, wherein, on coming into force of the Securitization Act, all other remedies are overshadowed. Till the time the provisions of the Securitization Act and any other law do not clash, both may be available for the parties. However, as soon as there is a region of inconsistency between the provisions of the Securitization Act and any other law, the special legislation i.e. Securitization Act, shall prevail.
Both the sides, speaking in favour of overriding effect and against it, have placed reliance on a number of reported judgments.
The provisions regarding legislative relations and distribution of legislative powers between the Union and the State are contained in part XI and Schedule VII of the Constitution of India. By virtue of Article 245, Parliament has powers to make laws for the whole or any part of the territory of India and the legislature of a State can make laws for whole or any part the State. Article 246 (1) of the Constitution indicates that, so far as list I in Seventh Schedule, titled as "Union List" is concerned, the Parliament has exclusive powers to make laws in respect of subject matters enumerated therein. Similarly, Article 246(3) confers exclusive powers upon the legislature of any State to make laws for such State or part thereof, with respect to any of the subject matters enumerated in list II in the Seventh Schedule, titled as "State list". Sofar as concurrent list i.e. list III in the Seventh Schedule is concerned, the legislature of any State also has power to make laws with respect to the subject matters enumerated in that list III of the Seventh Schedule, but such power is subject to Clause (1) of Article 246 i.e. subject to the power of the Parliament to legislate on those subjects.
Article 254 (1) guides us, when there is inconsistency between the laws made by the Parliament and a legislature of a State. The same reads:
254. Inconsistency between laws made by Parliament and laws made by the Legislatures States:
(1). If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament, which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause
(2), the law made by the Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void.
It is evident that, if the provisions of law made by the State Legislature are in conflict with the law made by the Parliament on any of the subjects contained in the `Union List''' ` (a law, which the Parliament is competent to enact) then, the provisions of the law enacted by the Parliament, prevail and conflicting provisions of the State legislation are to be considered as void. Similarly, if there is an existing law with respect to the subject-matters enumerated in concurrent list and in Article 254 (1) there is no specific reference, whether "existing law" is one enacted by the Parliament or by the State Legislature; the provisions of existing law shall prevail over the new State legislation. So far as second category is concerned, Clause (2) of Article 254 carves out exception, where a law made by Legislature of a State with respect to the subject matter enumerated in concurrent list contains a provision conflicting with the provision of ```earlier law''' made by the Parliament or by the State Legislature. (clause "law made by the Parliament or an existing law with respect to that matter" by its second half, we believe; covers existing State legislation). The new legislation of the State prevails over existing law enacted by Parliament or State Legislature earlier, provided that the new State legislation has been referred for consideration of the President and has received assent of the President.
For the purpose of present matter, we are not concerned with Clause (2) of Article 254, because it is not submitted before us that the MCS Act was referred for and has received assent of the President. The plain reading of Clause (1) of Article 254 would, therefore, mean that the Securitization Act being the legislation of the Parliament and the MCS Act being a legislation of the State, if the two legislations are within law making competence of the Parliament and the State Legislature by virtue of those being on the subjects enumerated in the Union list and the State list respectively; in that case, if there is conflict between the two, the provisions of the MCS Act will have to yield to the provisions of the Securitization Act.
A brief reference to matters enlisted in Union list and the State list is necessary and we quote three entries as follows;-
Union list: Entry No. 43. list: Entry No. 43. list: Entry No. 43. Incorporation, regulation and winding up of trading corporations including banking, insurance and financial corporations, but not including cooperative societies.
No. 45: Banking.
State list: Entry No. 32. Incorporation, regulation and winding up of corporations, other than those specified in List I and universities; unincorporated trading, literary, scientific, religious and other societies and associations; co-operative societies.
On comparison of entry No. 43 from Union List with entry No. 32 of State list, it is evident that incorporation, regulation and winding up of cooperative societies is the subject matter for legislation, exclusively by the State Legislature.
Reliance is placed by learned Counsel for MSC bank, as also Ratnaprabha Sugars, on the observations in the judgment of a division bench of this High Court in the matter of Marathwada Gramin Bank v. State 2007 (1) ALL MR 500 and also observations from another division bench judgment in the matter of Asha Oil Foods Pvt. Ltd. v. The Jalgaon Janta Sahakari Bank 2005 (2) ALL MR 721.
In the case of Ashal Oil Foods, the petitioner-company had obtained from Respondent Nos. 2 and 3 bank, a loan of the sum of Rs. 38.00 lakhs. The debt became non performing as on 1.7.1999. The bank approached the competent authority under MCS Act for adjudication of dues and issue of recovery certificate under Section 101 of the MCS Act. Upon conclusion of enquiry, a certificate was issued, certifying the bank to be entitled to recover Rs. 37.73 lakhs with interest and other amounts. Revision under Section 154 of the MCS Act, challenging the recovery certificate failed and the certificate became final. Thereafter, taking the recourse to Section 13 of the Securitization Act, Respondent Nos. 1 and 2 issued notice to the petitioner. Notice was challenged by the petitioner, by filing writ petition No. 2452 of 2004, which was disposed of with a direction that the petitioners' representation/proposal for settlement may be considered. Upon rejection of the settlement proposal, the bank preferred to act upon the notice under the Securitization Act. At that stage, the petitioner approached the court, seeking a declaration that the provisions of the Securitization Act cannot be applicable. The challenge to the action under Securitization Act, therefore, was because the bank had already obtained a recovery certificate under Section 101 of the MCS Act. While dismissing the petition, the Division Bench of this Court held;
It cannot also be said that Section 37 of the Securitization Act creates a non obstante clause only qua the provisions of Transfer of Property Act and not as against any other law. Section 37 is amply clear while it says that the provisions of this Act (Securitisation Act) or the Rules made therein shall be in addition and not in derogation to various laws named therein as well "any other law for the time being in force". The phraseology "any other law for the time being in force" renders the interpretation of various provisions of the Securitisation Act to have overriding effect over the Debt Recovery Act as well as MCS Act. The term "any other law for the time being in force" appearing in Section 37 of Securitisation Act essentially comprehends numerous statutes one amongst which has to be the Maharashtra Co-operative Societies Act, 1960 along with Section 91 or Section 101 thereof or other provisions whatsoever contained therein.
The facts in the matter of Marathwada Gramin Bank (supra) (supra) (supra) are much similar to the facts in the matter at hands. The court was dealing simultaneously, with five writ petitions. Two were filed by Marathwada Gramin Bank, challenging notice dated 28.7.2006 published by MSC bank for leasing out the premises and machineries of Shankar Sahakari Sakhar Karkhana Ltd., Waghulwada, Taluka Umari, District Nanded. A declaration was sought that the measures taken under Section 13 of the Securitisation Act were illegal and, therefore, directions were prayed for handing over the property of the Karkhana, to the liquidator. (MSC Bank had taken possession of the assets on 18.3.2006 pursuant to notice under Section 13(2) of the Securitisation Act. Interim order of appointment of liquidator was passed on 21.3.2006 and final order was passed on 21.7.2006).
Third and Fourth writ petitions were by some employees for salaries and allowances for the period when the Karkhana was functioning and even after its closure. Last writ petition by producer members sought directions that the steps taken by MSC bank for leasing out the karkhana should be taken to logical conclusions.
The division bench of this Court dismissed both the writ petitions filed by Marathwada Gramin Bank, as also two by the workers. So far as conflict between Securitization Act and MCS Act is concerned, the court observed in paragraph 23 thus;
What emerges from reading of the objects and reasons in enacting the said Securitisation Act, 2002, is that the said Act has been passed to enable the Banks to take possession of the securities and to sell them to recover the dues as it was found that the existing mechanism was not enough. The said Act according to us is therefore referable to entry No. 42 (45) list I in schedule II which entry covers "banking". The legislation in respect of the said entry is therefore the exclusive domain of Parliament. In sofar as the winding up of Co-operative Societies is concerned, it is covered by entry 33(32) of list II of the VII Schedule where the State legislature is competent to prescribe the mode provided for such winding up. Both the statutes therefore according to us operate in distinct and separate fields.
The court further observed in the same paragraph 23 of the judgment, as follows;
Though the said two statutes have been enacted by the respective legislatures in their allotted sphere and operate in different and separate fields, in the context of the appointment of the liquidator under the MCS Act 1960 on Karkhana a overlap or conflict has arisen. In such a situation, by virtue of the non-obstante clause in Article 246 (1) the Central Act will predominate. Therefore, in our view the Securitisation Act, 2002 has overriding effect over the MCS Act, 1960 and we are also fortified in our view by the Division Bench judgment of this Court reported in 2005 (2) ALL MR 721 (supra).
Having considered Sections 35 and 37 of the Securitisation Act, in the light of Article 254 (1) of the Constitution, we are of a considered view that in case of conflict between the Securitisation Act and the MCS Act; the Central legislation would prevail. Otherwise also, we are bound to follow the view taken by earlier division benches, unless we are of a different view and, therefore, inclined to make a reference to a larger bench for resolution of the conflict of views.
Although reliance was placed by Advocate Shri Dhorde for the MSC bank, on the judgment of the Supreme Court in the matter of Mardia Chemicals , we find it not necessary to refer to the observation therein. It was a petition, wherein the petitioners had challenged the validity of the Securitisation Act, which challenge was dismissed by the Supreme Court, except to the extent of Section 17(2) of the Securitisation Act, which was held unconstitutional.
Advocate Shri Dhorde, has placed reliance upon certain observations of the Supreme Court in the matter of Association of Natural Gas v. Union of India AIR 2004 SC 2647. This was a reference by the President of India under Article 143 (1) of the Constitution of India about Gujarath Gas (Regulation of transmission, supply and distribution) Act 2001. The constitution bench answered the reference, saying that the natural gas, including liquified natural gas (L N G) is a union subject, covered by entry No. 53 of List I. The States have no legislative competence to make laws on the subject of natural gas and liquified natural gas under entry No. 25 of list II and, therefore, provisions contained in the Gujarat Act, relating to natural gas or liquified natural gas, were ultra vires the Constitution. It is obvious that, we do not have parallel facts, but Advocate Shri Dhorde has placed reliance upon observations in paragraphs 13 and 15 which read thus;
13. The constitution of India delineates contours of the powers enjoyed by the State Legislature and the Parliament in respect of various subjects enumerated in the Seventh Schedule. The rules relating to distribution of powers are to be gathered from various provisions contained in part XI and the legislative heads mentioned in three lists of the Schedule. The legislative power of both, Union and the State Legislatures, are given in precise terms. Entries in the list are themselves not powers of the legislation, but fields of legislation. However, an entry in one list cannot be so interpreted as to make it cancel or obliterate another entry, or make any entry meaningless. In case of apparent conflict, it is the duty of the court to iron out the creases and avoid conflict by resolving the conflict. If any entry overlaps or is in apparent conflict with another entry, every attempt shall be made to harmonise the same.
Paragraph 15 of the judgment is concluded with observations as under;
15. However, where there is irreconcilable conflicts between the two legislations, the central legislation shall prevail. However, every attempt would be made to reconcile the conflict.
Learned Government Pleader has placed reliance upon reported judgment in the matter of Bharat Hydro Power Corporation Ltd. v. State of Assam and more particularly on observations in paragraph
18. The observations are pertaining to enactments purporting to deal with subjects in one list, touching also a subject in another list and prima facie giving an impression, as if one legislature is impinging on the legislative field of another legislature. The Supreme Court has laid down;
To examine whether a legislation has impinged on the field of other legislatures, in fact or in substance, or is incidental, keeping in view the true nature of the enactment, the courts have evolved the doctrine of "pith and substance" for the purpose of determining whether it is legislation with respect to matters in one list or the other. For applying the principle of "pith and substance" regard is to be had (i) to the enactment as a whole, (ii) to its main objects, and (iii) to the scope and effect of its provisions. Where the question for determination is whether a particular law relates to a particular subject mentioned in one list or the other, the courts look into the substance of the enactment. Thus, if the substance of enactment falls within the Union List then the incidental encroachment by the enactment on the State List would not make it invalid.
With due respect to learned Government Pleader, reference to these observations is not necessary because, we are not dealing with any arguments challenging legislative competence either of the Central Government in legislating the Securitization Act, or that of the State Government in legislating the MCS Act.
In the matter of Greater Bombay Cooperative Bank Ltd. v. United Yarn Tex. Pvt. Ltd. 2007 AIR SCW 2325, question invovled was whether the cooperative bank established under MCS Act 1960, APCS Act, 1964 and MSCP Act 2002 transacting the business of banking fall within the meaning of 'banking company" as defined in Section 5 (c) of the Banking Regulation Act, 1949. The issue was answered in the negative and, therefore, the provisions of Recovery of Debts Due to Banks and Financial Institutions Act 1993, were held not applicable to the recovery of dues by the cooperative from their members.
We feel that the issue invovled was totally different and, therefore, reliance placed by learned Government Pleader on the said judgment, is not of any help to the State.
In view of the discussion hereinabove, it must be said that in case of conflict, the Securitisation Act shall have effect overriding the provisions of the MCS Act. Point No. 9 will, therefore, have to be and is accordingly, answered in the negative.
Point No. 11 is precisely regarding the conflict between the provisions of Section 13(2)(4) of the Securitisation Act and Section 105(1)(e) of the MCS Act read with Rule 91 thereof. By virtue of provisions of the MCS Act, the bank is entitled to interest at the rate as may be determined by the liquidator, so far as period from the date of appointment of the liquidator is concerned, whereas, by virtue of Securitisation Act, the bank is entitled to recover its entire dues i.e. interest at contractual rate. Having held that the Securitisation Act shall prevail over the MCS Act or rules thereunder, the provisions of Section 105 (1) (e) will have to yield to the provisions of the Securitisation Act. Hence, point No. 11 is answered in the negative.
32. While recording findings as above, we cannot forget findings recorded by us on two parts of point No. 8. We have held that the provisions of Securitisation Act cannot be enforced by MSC banks against the movables i.e. pledged sugar, although it may have preference over unsecured creditors, so far as sale proceeds of the pledged sugar stock is concerned, being a pawnee. Notice,if any, under Securitisation Act, sofar as sale proceeds of the sugar stock are concerned, is incapable of bringing those sale proceeds within the purview of Section 13 (4) of the Securitisation Act. It is not the case of MSC bank that it has given a reasonable notice to the pawnor (sick sugar factory) as required under Section 176 of the Indian Contract Act, nor it claims to have proceeded under Sub-section (11) of Section 13 of the Securitisation Act. The sale proceeds of the sugar stock,therefore,deposited in this Court as well as with the liquidator and interest accrued thereon, if those are invested, will have to be dealt with under Section 105 (1) (e) of the MCS Act, i.e. the liquidator will have to determine the claims of the MSC bank and the workers of the sick sugar factory, as also some petty creditors (suppliers of some goods, such as, spare parts of the vehicles, whose civil applications are disposed of by us,observing that they can approach the liquidator). So far as sale proceeds of the assets are concerned, in case sale in favour of Ratnaprabha Sugars is confirmed, those will have to be paid by the MSC Bank to the exclusion of all other creditors;since assets of sick factory are "secured assets" under Securitization Act and, therefore, amenable to action under Section 13 (4) of the said Act.
33. Policy decision. Writ Petition filed by Ratnaprabha Sugars is opposed by learned Government Pleader, as also Advocate Shri Chandak, by claiming that cancellation of tender of Ratnaprabha Sugars is a policy decision and, therefore, the court should not interfere with the same. Learned Government Pleader has placed reliance upon observations of the Supreme Court in the matter of Ekta Shakti Foundation v. Govt. of NCT of Delhi 2006 (6) SCC 372. It is a judgment in the writ petitions challenging legality of certain terms in inviting offers for implementation of the scheme called,, " Detailed Scheme for capacity Building of Self Help Groups to Prepare and Supply Supplementary Nutrition under the Integrated Child Development Services (ICDS) Programme". We may not be concerned with the facts, but the observations relied upon by learned Government Pleader, as contained in paragraphs 10 and 12 of the judgment read as under;
While exercising the power of judicial review of administrative action, the Court is not the appellate authority and the Constitution does not permit the Court to direct or advise the executive in matters of policy decision or to sermonize any matter which under the Constitution lies within the sphere of the Legislature or the executive, provided these authorities do not transgress their constitutional limits or statutory power.
Regarding the scope of judicial review, it is further observed in the same paragraph 10 thus;
The scope of judicial enquiry is confined to the question whether the decision taken by the Government is against any statutory provisions or is violative of the fundamental rights of the citizens or is opposed to the provisions of the Constitution. Thus, the position is that even if the decision taken by the Government does not appear to be agreeable to the Court, it cannot interfere.
Observations in paragraph 12 are specifically pertaining to scope of interference by the courts in the matters of policy decision of the Government and the observations read:
The policy decision must be left to the Government as it alone can adopt which policy should be adopted after considering all the points from different angles. In matters of policy decision or exercise of discretion by the Government so long as the infringement of fundamental right is not shown, Courts will have no occasion to interfere and the Court will not and should not substitute its own judgment for the judgment of the executive in such matters. In assessing the propriety of a decision of the Government, the Court cannot interfere even if a second view is possible from that of the Government.
Even upon reading the observations relied upon by learned Government Pleader, it cannot be said that there is no scope for interference or the courts have no powers to interfere in the matters, of either administrative decision, or policy decision. It is evident that the scope of interference is limited i.e. the courts will step in, only if the authorities have transgressed the constitutional or statutory limits, if the decision of the government is violative of fundamental rights of the citizens. Even in the case of policy decision, the court can interfere, if there is infringement of fundamental right.
In the matter of Tata Celluler v. Union of India (1994) 6 SCC 651, we may refer only to the observations which lay down proposition pertaining to judicial review and the scope of it, and more particularly, so far as it relates to the policy decision of the Government. In paragraph 70, the Hon'ble Apex Court observed thus;
70. The principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State.
The observations from paragraphs 74,75, 82, 152 and 154 are consolidated in the head note as under:
Judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision making process itself. It is thus different from an appeal. When hearing an appeal, the Court is concerned with the merits of the decision under appeal. Since the power of judicial review is not an appeal from the decision, the Court cannot substitute its own decision. Apart from the fact that the Court is hardly equipped to do so, it would not be desirable either. Where the selection or rejection is arbitrary, certainly the Court would interfere.
It is laid down that the duty of the court is to confine itself to the question of legality and court's concern should be;
(1) Whether a decision-making authority exceeded its powers. ?
(2) committed an error of law,
(3) committed a breach of the rules of natural justice.
(4) reached a decision, which no reasonable Tribunal would have reached OR,
(5) abused its powers.
Although it is observed that it is not for the court to determine whether a particular policy or a particular decision taken in fulfilment of that policy decision is fair and it is only concerned with the manner in which those decisions are taken, it is also observed that the extent of the duty to act fairly will vary from case to case and the grounds upon which the administrative action is subject to control of judicial review are crystalized as under;
(i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.
(ii) Irrationality, namely, Wednesbury unreasonableness. It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at. The decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it.
(iii) Procedural impropriety.
It is added that, the above are only the broad grounds but it does not rule out addition of further grounds in course of time. Ultimately, it is observed that in all such cases, the test to be applied by the court, should be "consider whether something has gone wrong of a nature and degree which requires its intervention."
Advocate Shri Chandak has placed reliance upon the observations of the Supreme Court in the matter of BALCO employees Union (registered) v. Union of India . (We may refer to factual details from this case, while considering the aspect "what is policy"what is policy"what is policy decision"). Reference to factual details is not necessary for the purpose of submissions advanced by Advocate Shri Chandak. He has relied upon observations in paragraphs 46, 47, 92 and
93. In fact, quoting the conclusions, as recorded by the Apex Court in paragraphs 92/93, and some part in paragraphs 94/95 would suffice to reflect the submissions of Advocate Shri Chandak.
92. In a democracy, it is the prerogative of each elected Government to follow its own policy. Often a change in Government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the court.
93. Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts. Here the policy was tested and the motion defeated in the Lok Sabha on 1.3.2001.
In paragraphs 94/95, the Honourable Court has also recorded that fair, just and equitable procedure was followed in carrying out disinvestment and that the offer of the highest bidder was accepted.
Advancing practically no submissions as to what is policy decision", learned Counsel have opposed challenge of Ratnaprabha Sugars, which prays for quashment of the decision dated 4.10.2006, by which a committee of Ministers only cancelled the bid of Ratnaprabha Sugars and decided to lease out the sugar factory after relaxation of status-quo by the High Court. We shall advert ourselves to issue as to what is "policy decision", little later. But, at this stage, when we are guided by the reliance upon the observations of the Supreme Court regarding, when courts can interfere in case of a challenge to executive or policy decision of the government and what is the scope of interference, we can examine for ourselves, whether interference by us in the decision dated 4.10.2006 is warranted and if we interfere with it, whether we will be within our powers.
In this context, some reference can be had to the reasons recorded by us in paragraph 30 ante. We have held the decision dated 4.10.2006 to be bad on three counts viz. (a), (c) and (e) i.e. the Committee was not competent to take such a decision (by reliance upon Section 79-A of the MCS Act, as was tried to be justified by learned Government Pleader), the decision suffers from Wednesbury unreasonableness and the liquidator/State are estopped from cancelling the bid. We may summarise the reasons why we have arrived at such a conclusion in one sentence, by saying that the committee has failed to take into consideration the factors, which it ought to have. The committee has taken such a decision merely because the litigations are filed against the sick sugar factory. The committee does not seem to have taken into consideration that unless the factory starts running immediately, the workers and the producer members will be in deep trouble, nay they would practically starve. The committee has not considered that the tenders were invited for sale and in the process, the lease of five years in favour of Vaidyanath Sahakari Sakhar Karkhana Ltd., was terminated just after 1-1/2 years. There is no material on record to demonstrate, whether Vaidyanath S.S.K. abandoned the lease because the factory was not running with reasonable returns, or whether the government terminated its lease, because the factory was decided to be sold. In either case, a decision to revert to leasing out the sick sugar factory is the decision, which ought not to have been taken. The committee has totally ignored the fact that the price offered by Ratnaprabha Sugars is much higher than what can be termed as "reasonable "reasonable" "reasonable" in comparison with the prices offered for other 4-5 Sugar factories which were put to sale. It has ignored that neither NABARD nor State/Union have come forward during last 4-5 years, with any financial package. The committee has not considered what is the amount of interest mounting on the debts of sick sugar factory. We believe that, we have sufficient material to hold the impugned decision dated 4.10.2006 to be suffering from Wednesbury unreasonableness.
We are, therefore, of the view that, in spite of considering the guide-lines in the three reported judgments of the Hon'ble Apex Court, we would be justified in interfering with the decision dated 4.10.2006.
Although we have not recorded a finding that the decision dated 4.10.2006 is vitiated as mala fide, if we take into consideration few factual details, one cannot avoid at least suspecting that there is an attempt to ensure closure of the sick sugar factory. Although production was stopped in 2000, nobody looked after it till appointment of the liquidator in May 2002. In June-July 2002, factory was leased out and Vaidyanath S.S.K. had run it for 1-1/2 crushing season, when the decision to sell the factory was taken, although lease in favour of Vaidyanath S.S.K. was for five years. Although Ratnaprabha has shown willingness to pay the price and run the factory at its location (in stead of shifting plant and machinery elsewhere, or effecting its further sale as scrap), nearly 2-1/2 years are spent in negotiating with MSC bank, workers and Ratnaprabha Sugars. If at all liquidator/State authorities had sincere desire to run the factory for its reconstruction, there was no bar for those authorities approaching the court for suitable modification in the status-quo order. The decision not to confirm the sale is taken after compromise was arrived at on 1.8.2006, in stead of persuading the MSC bank, which was indicating desire for some modifications in the agreement arrived at. We have our own doubts, whether the decision dated 4.10.2006 can be termed as a "policy decision", merely because it is taken by a committee consisting of three Ministers. Unfortunately, both the learned Counsel who opposed the prayer of Ratnaprabha Sugars on the ground that it will be interference in the policy decision, did not enlighten us as to what is "policy decision" by placing any literature on the subject before us.
In K.J.Aiyar's Judicial Dictionary (12th Edn.), the meaning of word "policy" is as under:
Policy. The word `policy', according to Black's law dictionary, 16th Edition, means the general principle by which a government is guided in its management of public affairs-and according to the Concise Oxford Dictionary, 8th Edition, a course or principle of action adopted or proposed by a government.
In Venkatramayya's Law Lexicon, 2nd Edition, `policy' means:
The term `policy' according to the Oxford Dictionary means political sagacity, statecraft, prudent conduct, sagacity, craftiness, course of action adopted by the government" - According to Webster's New International dictionary `policy' means a settled or definite course or method adopted and followed by a government, institution, body or individual, a wise scheme or device, a contrivance especially cunning contrivance, a stratagem, a civil or ecclesiastical policy of government, the science of government.
From the portions underlined hereinabove, it is evident that the policy decision precedes the events. Even taking the facts of the matter at hands, the government deciding to constitute a committee of Ministers, after taking into consideration that quite a good number of sugar factories were sailing in rough weather, for the purpose of taking a decision regarding future of these factories, by taking into consideration, financial position and other details of each of the factories, can be said to be a general principle adopted by the government. Such a committee formulating the para-meters as to which factories should be run on lease, with/without support of financial packages, which factories should be sold and a decision to examine the status of each factory on those parameters, can be said to be a policy decision. The decision taken in case of each individual factory , whether to lease or sale, would be a decision towards implementation of the policy decision. But, once it is decided to sell the factory or lease it out, cancellation of bid or cancellation of lease, by no stretch of imagination; can be terms as "either policy decision" or "a decision in compliance of the policy adopted."
We can visualise another character essential for a decision being a `policy decision'. It may not be applicable to an isolated case. A decision taken before hand or parameters fixed well in advance, would apply to a number of cases falling within the parameters, all over the State. In other words, there would be repeated occasions to test the cases of several entities, on the basis of parameters fixed by the government on the basis of policy decision. It is not demonstrated before us that the committee so appointed to determine the fate of factories, had also taken a decision as to in what cases the bids for sale were to be rejected. On the contrary, we have discussed in paragraph 20 ante that the price offered by Ratnaprabha Sugars is much higher than the parameters of price fixed by Government Resolution dated 20.10.2005 and 29.11.2005, by quite a broad based committee, consisting of eight Ministers, one State Minister and two Secretaries from various departments of the Government. Although Government Resolution fixes price only for the mills in Khandesh region, even considering the prices in Marathwada region to be on higher side, the price offered by Ratnaprabha Sugars can be seen to be 2.4 times of price of a factory of identical capacity, in Khandesh region.
Examined on these two tests, as can be read within the dictionary meaning of word `policy', the decision dated 4.10.2006 to cancel the bid of Ratnaprabha Sugars and to run the factory on lease as and when status-quo would be vacated by this Court, does not appear to be a `policy decision'.
The two tests which we have visualised from the dictionary meaning of word `policy' can be eloquently seen in the matter of BALCO Employees Union (Regd.) v. Union of India (supra). In this matter, since 1991, successive central governments had been planning to disinvest some of the public sector undertakings. Thus, disinvestment from the public sector, was a policy decision. By a resolution dated 23.8.1996, the Ministry of Industry (Department of Public Enterprises), Government of India constituted a Public Sector Disinvestment Commission, initially for a period of three years. The resolution stated that the Commission was established in pursuance of Common Minimum Programme of the United Front Government at the Centre. The Commission was an independent non-statutory advisory body with a full-time Chairman and four part time members. The resolution had referred to the Commission, precise Terms of Reference and thus, the Commission was expected to draw a comprehensive overall long term disinvestment programme, to determine the extent of disinvestment, to monitor the progress of disinvestment process, to assist the government, to create public awareness of government's disinvestment policies and programmes, and also to give wide publicity to disinvestment proposals, so as to ensure larger public participation in the shareholding of enterprises. Final decision on the recommendations of the Disinvestment Commission was to vest with the government. The Union of India also laid down broad procedures for processing the recommendations of the Disinvestment Commission. On 10.12.1999, the Department of Disinvestment was set up. The Disinvestment Commission, in its second report submitted in April 1997, advised the Government of India that BALCO needed to be privatised.
As observed in paragraph 93, the policy was tested and the motion was defeated in Lok Sabha. The policy had thus, received approval in the House of Parliament. The actions in the matter of BALCO disinvestment, indicate all the characteristics of "policy decision" decision" decision". It was a course of action, determined well in advance with its modalities and procedure and the course of action was applicable not to an isolated industry, but for all public sector undertakings under consideration. If the decision dated 4.10.2006, of cancellation of bid in our case is compared with the facts in BALCO case, our observation that the same is not a `policy decision' stands fortified.
34. Learned Senior Counsel Shri P.M. Shah has drawn our attention to earlier judgment of a Division Bench of this High Court in a writ petition filed by some of the workers of sick sugar factory, reported at 2004 (Supp.2) Bom. C.R. 651 (Baburao Dadarao Kolhe and Ors. v. State of Maharashtra and Ors. (Writ Petition No. 5639 of 2003, decided on 20.1.2004). The writ petition was filed on behalf of the workers working with sick sugar factory against the order of Registrar, refusing leave under Section 107 of M.C.S. Act. The workers had filed a complaint under Section 28 of Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, making a demand as regards their wages for about five years. While observing that Registrar ought to have granted permission and allowing the workers to implead the liquidator as a party before the Industrial Court, this Court observed:
We make it clear that the proceedings pending on the file of Industrial Court would culminate in crystalising the exact amount to which each of the petitioners is entitled to receive from the respondent No. 3 employer. Once that is over, it would be for the liquidator to satisfy the claims of the petitioners on the basis of order passed by the Industrial Court. The liquidator need not and shall not proceed to adjudicate the individual claims of the present petitioners.
It was also clarified that liquidator would be free to dispose of the assets with a view to wind up the sugar factory and from the proceeds that he receives, the claims of the petitioners could be satisfied. It was also indicated that if the amount falls short, the liquidator may proceed on pro rata basis.
We do not find the judgment to be an impediment in disposing of the writ petitions. If the Industrial Court has decided the claims of the workers and the judgment has reached finality, the liquidator may utilise the judgment for determination of the issue regarding entitlement of the amount (quantum) by the workers. Needless to say that the claims of the workers will have to be thereafter considered in accordance with Section 105(1)(e) of M.C.S. Act.
Since we are not directing implementation of the consent terms dated 1.8.2006, the arguments advanced by learned Senior Counsel, based on H.P.A. International v. Bhagwandas , need not be dealt with at length.
35. For the reasons discussed hereinabove and the findings recorded, following will be the result.
Writ Petition No. 1278 of 2004 by MSC bank will have to be partly allowed, to the extent it challenges the decision dated 4.10.2006. However, there is no question of putting the assets of the sick sugar factory at the disposal of the MSC bank. As observed by us hereinabove, the MSC bank shall be entitled to recover its `secured debt' debt' debt' from sale price of Rs. 23.75 crores offered by Ratnaprabha Sugars.
Writ Petition No. 6600 of 2005 by MSC Bank will have to be dismissed. Sale proceeds of sugar stock deposited in this Court, as also with the liquidator, and the interest, if any; accrued thereon, as a result of investment of these amounts in Fixed Deposits, shall be at the disposal of the liquidator for determination of claims of MSC bank, workers and other creditors of the sick sugar factory.
Civil Application Nos. 10091/2007 and 10182/2007 by MSC bank, Writ Petition No. 7907/2007 by Ratnaprabha Sugars are allowed to above extent, i.e. the decision dated 4.10.2006 shall stand cancelled, sale in favour of Ratnaprabha Sugars shall stand confirmed on Ratnaprabha Sugars depositing the amount of Rs. 23.75 crores by Demand Draft or Banker's cheque with Collector, Parbhani for and on behalf of the Board of Liquidators, on or before 2nd July 2008. The confirmatiion of sale is on condition that Ratnaprabha Sugars will start the factory at its present location, and permanent and regular employees of the factory shall also be continued as such. The MSC bank alone will be entitled to recover its `secured debt'`secured debt'`secured debt' from this amount and surplus,if any,shall revert to the liquidator for disposal under Section ec. 105 (1) (e) of the MCS Act.
We have already indicated that the sale proceeds of the sugar and interest on that proceeds shall be at the disposal of the liquidator for determination and satisfaction of the claims of the MSC bank, workers and other creditors of the sick sugar factory, in accordance with Section 105 (1) (e) of the MCS Act.
Writ Petition No. 6092 of 2006 will have to be dismissed.
Writ Petition No. 6592 of 2006 can be said to have been partly allowed in above terms, since we are not directing implementation of the consent terms, because on reference to the consent terms, which were filed in Writ Petition Nos. 5689 and 5690 of 2004, and a copy of which is made available for ready reference, we find that the workers' union is not a party to the said consent terms.
Writ Petition Nos. 6955 of 2006, 5212 of 2007 and 5221 of 2007 by individual members, seeking to quash the decision to sell and directions to start the sick sugar factory on lease, will have to be dismissed.
Civil Application No. 5085 of 2007 in Writ Petition No. 7907 of 2006, seeking stay to the execution of tender notice dated 27.6.2007 will have to be allowed and the said tender notice will have to be quashed. In view of status-quo ordered on 24.3.2004 by this Court, any action affecting the sick sugar factory in the teeth of the status-quo will have to be labelled as `illegal'. (, Satyabrata Biswas v. Kalyan Kumar).
Rule is made absolute in above terms and the same is discharged to the extent Writ Petitions or Civil Applications, praying for any relief other than the relief granted hereinabove.
All ten Writ Petitions (including WP No. 330/2005 and 5844/2007) and Civil Application Nos. 10091/2007, 10182/2007 and 5085/2007 are disposed of, accordingly.
Soon after pronouncement of the judgment, learned Counsel Shri P.M.Shah, on behalf of the Board of Liquidators, has prayed for stay to the execution and implementation of this decision. Since we have granted time to Ratnaprabha Sugars to deposit the amount till 2.7.2008, we are also inclined to grant stay to the execution and implementation of the judgment till 2.7.2008. We clarify that this will not be an impediment in Ratnaprabha Sugars depositing the amount earlier.