Bombay High Court
The State Of Uttar Pradesh - Intervenor vs Purushottam Hindi Bhavan Nyas Samiti ... on 20 December, 2023
Author: N.J.Jamadar
Bench: N.J.Jamadar
2023:BHC-OS:15062
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO.6170 OF 2021
IN
COMPANY APPLICATION NO.346 OF 2019
IN
COMPANY PETITION NO.999 OF 2000
The State OF Uttar Pradesh
Through Special Land Acquisition Officer,
(Sanyukt - Sanghthan)
Collectorate, Bareilly, Uttar Pradesh ... Applicant
and
Purshottam Hindi Bhavan Nyas Samiti,
Office at Hindi Bhavan, 11,
Vishnu Digamber Marg, Rouse Avenue,
Near Lal Bhavan, Mata Sundari
Railway Colony, Mandi House,
New Delhi - 110 002. ... Petitioner
versus
M/s. Synthetics Chemicals Ltd. ( in liqn.),
Office at D-6, Shri Vakratund Co-op. Hsg.
Soc. Ltd., Plot No.565,
Sector 5, Opp. To Charkop Bus Depot,
Kandivali, Mumbai ... Respondent
and
Alchemist Asset Reconstruction Company Ltd.
Office at D-54, 1st Floor, Defence Colony,
New Delhi - 110 024 ... Respondent/Secured
Creditor
Mr. Anil Singh, Senior Advocate with Mr. Chaitanya Chavan, Ms. Bhavana DubePatil
i/by Jay and Co., for Applicant in IAL 6170 of 2021
Mr. Venkatesh Dhond, Sr. Advocate with Mr. Ashish Pyasi i/by PRS Legal, for
Applicant in IAL 18878 of 2022 and for Respondent in IAL 6170 of 2021, IAL 8978 of
2020 and CA 123 of 2019.
Ms. Khushboo Soni i/by Manilal Kher Ambalal and Co., for ICICI Bank Ltd.
Mr. Dhiraj Chavan i/by Deven Dwarkadas and Partners, for Court Receiver - DRT.
Mr. Shanay Shah, for Official Liquidator.
SSP 1/32
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CORAM : N.J.JAMADAR, J.
RESERVED ON : 28 JUNE 2023
PRONOUNCED ON : 20 DECEMBER 2023
JUDGMENT :
1. The State of Uttar Pradesh - Intervener, has taken out this application
seeking to be impleaded as party Respondent in Company Application No.346 of 2019
in Company Petition No.999 of 2020, whereby this Court had allowed the Respondent
No.2 - secured creditor to sell the assets of the Respondent No.1 Company in
liquidation in consultation with the Official Liquidator.
2. The application arises in the backdrop of the following facts :
2.1 M/s. Synthetics and Chemicals Ltd. (M/s. Synthetics) is the company
incorporated under the Companies Act, 1956. At the instance of M/s. Synthetics, the
State of Uttar Pradesh - Intervener, had acquired a large parcel of land admeasuring
1380.23 acres, situated at Bareilly - Uttar Pradesh (the subject land) for the purpose of
setting up synthetics rubber factory, under Section 41 of the Land Acquisition Act,
1894.
2.2 The Intervener had entered into an agreement with M/s. Synthetics on
19 June 1960. The acquisition of the subject land was subject to the terms of the said
agreement which, inter alia, provided for the use of the land by M/s. Synthetics and
the rights of the Intervener, in case of default, including right of re-entry. A Deed of
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Transfer was also executed on 29 April 1961. The Intervener asserts, in exercise of the
power conferred under Clause 3 (d) of the Agreement dated 19 June 1960 M/s.
Synthetics was directed to transfer 100 acres land for the public purpose i.e.
establishment of BSF battalion. Accordingly, possession of 100 acres of land came to
be delivered to the Collector under Possession Deed dated 22 July 1982. Another
parcel of land admeasuring 9.3746 H was acquired for development of National
Highway No.24 - (Muradabad Bareilly Section).
2.3 The Intervener asserts, M/s. Synthetics had no right to create any
mortgage over the subject land in favour of any bank or financial institution in
accordance with the terms of the Agreement dated 19 June, 1960. The Intervener,
however, came across a possession notice dated 29 th March 2018 under Section 13(4)
of the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act,) 2002, published on dated 4 April 2018,
at the instance of secured creditor.
2.4 The Intervener, aggrieved by the possession notice under Section 13(4)
of the SARFAESI Act, 2002 issued by the secured creditor, filed Securitisation
Application (SA) No.150 of 2018 before the Debt Recovery Tribunal (DRT),
Lucknow, for setting aside possession notice dated 29 March 2018. It was, inter alia,
contended that no security interest was created in favour of the alleged secured
creditor and the action was in gross violation of the provisions of the SARFAESI Act,
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and Security Interest Rules, 2002.
2.5 Upon the Intervener making further inquiries, it transpired that the
instant Petition for winding up of M/s. Synthetics had been instituted. By an order
dated 28 June 2018, this Court ordered M/s. Synthetics to be wound up and
appointed the Official Liquidator, High Court as a Liquidator of M/s. Synthetics -
Respondent No.1 with all powers under the Companies Act, 1956. An application was
filed for impleading the Official Liquidator - High Court, Bombay, as a party
Respondent in Securitisation Application No.150 of 2018 filed before the DRT,
Lucknow.
2.6 The Intervener avers, on 11 March 2019, when SA No.150 of 2018 was
listed before the DRT, a submission was made on behalf of Alchemist - the secured
creditor, that the secured creditor was not proceeding under the provisions of
SARFAESI Act, 2002 and, thus, there was no cause of action for SA No.150 of 2018
before the DRT.
2.7 In view of the said statement, the Intervener - the applicant in SA, did
not press the SA, and, thus, the said SA No.150 of 2018 came to be disposed of.
2.8 Alleging that without disclosing the pendency of SA No.150 of 2018 and
the interest of the Intervener in the subject land, the secured creditor had fraudulently
moved Company Application (L) No.647 of 2018 seeking a direction that the Official
Liquidator, attached to the High Court, be directed to take possession / control of all
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the assets of M/s. Synthetics ( in liqn.).
2.9 By an order dated 28 November 2018, this Court allowed the said
Company Application (L) No.647 of 2018 and, by consent of the parties to the
Company Petition, the sale notice issued by the Recovery Officer, DRT, was set aside
and it was directed that the sale of the said property shall be conducted through the
office of the Official Liquidator. However, the aid order dated 28 November 2018 was
not brought to the notice of the DRT in SA No.150 of 2018.
2.10 After the disposal of SA No.150 of 2018, upon the statement made on
behalf of the Secured creditor that it was not proceeding under the SARFAESI Act,
2002, the secured creditor, the Intervener alleges, again clandestinely preferred
Company Application No.346 of 2019, inter alia, praying for the direction that the sale
of the assets of the company in liquidation, including the subject property, be
conducted under the SARFAESI Act, 2002 and the said order dated 28 November
2018 be modified in view of the decision of the secured creditor to proceed under the
provisions of the SARFAESI Act, and, to that extent, discharge the Official Liquidator
from his duties.
2.11 The Intervener alleges, the secured creditor deliberately did not implead
the State of Uttar Pradesh as a party to the said Company Application, actively
concealing the fact that the State of Uttar Pradesh had an interest in the subject land
and had raised objection to the possession notice by filing SA No.150 of 2018 before
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the DRT, Lucknow and that on the portion of the subject land, there were defence
installations and highway and that the State of Uttar Pradesh had withdrawn the SA
on the basis of the statement made by the secured creditor that it would not proceed
under SARFAESI Act.
2.12 Eventually, in Company Application No.346 of 2019, by an order dated
19 October 2020, this Court directed the Court Receiver, DRT, to handover
possession of the subject land to the secured creditor, permitted the secured creditor
to conduct the sale of the subject land in consultation with the Official Liquidator and
deposit the sale proceeds with the Official Liquidator, within one week of receiving the
same, with liberty to apply to the Company Court to pay over to it the share of the sale
proceeds.
2.13 The Intervener alleges, the aforesaid order was obtained by the secured
creditor by resorting to suppressio veri, which is equivalent to suggestio falsi. The said
order prejudicially affects the interest of the Intervener. Therefore, the said order
dated 19 October 2020 passed in Company Application No.346 of 2019 be recalled
and /or modified.
3. The application was resisted by the secured creditor by filing an affidavit
in reply. The application was stated to be wholly misconceived and also an abuse of
process of law, as such an application is not maintainable in the proceeding i.e. CA 346
of 2019 which has already been disposed of. If the Intervener is aggrieved by the order
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dated 19 October 2020 whereby the said Company Application No.346 of 2019 came
to be disposed, the Intervener ought to have challenged the said order in an
appropriate proceeding. The tenability of the application was also questioned on the
ground that the essential challenge being to the power of the secured creditor to
realize the security, such challenge can only lay before the authorities constituted
under the SARFAESI Act, 2002 as the jurisdiction of civil courts and tribunals has
been ousted. In the same vein, it was contended the Company Court's jurisdiction
being limited, this Court may not entertain the instant application.
4. Contesting the claim of the Intervener that it is the owner of, or has an
interest in, the subject property, the secured creditor asserted that pursuant to the
agreement dated 19 June 1960 and Deed of Transfer dated 29 April 1961, M/s.
Synthetics became the sole and absolute owner of the subject property. M/s.
Synthetics was running a plant in the suit property till the year 2000, and for the said
purpose, it had raised financial facilities from various financial institutions and banks
and had, in the process, created security interest over the subject premises in the
capacity of the owner thereof. Therefore, the contention of the Intervener that M/s.
Synthetics could not have created security interest in the subject property is legally
unsustainable.
5. The secured creditor also contested the claim of the Intervener that it
could resort to the provisions contained in clause (3) of the Agreement dated 19 June
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1960 and re-enter the suit property for the alleged breach of the terms of the said
agreement.
6. On the core contention of the alleged fraud in obtaining the order dated
19 October 2020 to realize the security by sale of the assets of M/s. Synthetics ( in
liqn.), including the subject land, the secured creditor contended that the statement
was made before the DRT, Lucknow in SA No.150 of 2018, that it would not proceed
under the SARFAESI Act before the lenders agreed in a JLM to sell the property
under the agsis of SARFAESI Act, 2002. Thus, SA No.150 of 2018 was disposed of as
withdrawn on 11 March 2019 in view of the then prevailing circumstances. However,
the secured creditor asserts, the DRT Receiver failed to take steps and, therefore, the
secured creditor was constrained to move Company Application (L) No.647 of 2018
and Company Application No.346 of 2019 as the creditors of the company ( in liqn. ),
in the JLM meeting, decided to pursue their remedies under the SARFAESI Act.
7. The secured creditor contends, that it is entitled to enforce its security
under the SARFAESI Act, untethered. Where the secured creditor decides to get out
of the liquidation proceedings and realize the security interest by sale of the property
of the borrower, a party, like the intervener, was neither a necessary nor a proper party.
Therefore, the allegations of fraud on account of the alleged non-disclosure of the
interest of State of Uttar Pradesh, non impleadment of the secured creditor as a party
to Application No.346 of 2019 and non-disclosure of the proceedings in SA No.150 of
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2018 and the outcome thereof, do not constitute any fraudulent act on the part of the
secured creditor by any stretch of imagination.
8. The acquisition of the portion of the subject land for establishment of
BSF Battalion and for broadening the National Highway, according to the secured
creditor, does not confer right in the Intervener to restrain the secured creditor from
enforcing security interest. The endeavour on the part of the Intervener was to
further delay the sale of assets of the company in liquidation to discharge the debts of
the company in liquidation, including that of the workers.
9. I have heard Mr. Anil Singh, learned Senior Advocate appearing for the
Applicant - Intervener, Mr. Venkatesh Dhond, learned Senior Advocate appearing for
the applicant - Secured Creditor, Ms. Khushboo Soni, for ICICI Bank, Mr. Dhiraj
Chavan, for the Court Receiver and Mr. Shanay Shah, for the Official Liquidator.
With the assistance of the learned Counsel for the parties, I have perused the relevant
pleadings and the material on record.
10. Few facts are rather uncontroverted. At the instance of M/s. Synthetics,
the State of Uttar Pradesh had acquired the subject land under Section 41 of the Land
Acquisition Act. An Agreement dated 19 June 1960, thus, came to be executed
between the Governor of Uttar Pradesh and M/s. Synthetics. Upon acquisition, the
company in liquidation was to establish synthetic rubber factory at the said site which
was likely to prove useful to the public. It is incontestable that M/s. Synthetics was a
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running concern, at least till the year 2000. Out of 1380 acres of land, indisputably
portions of land were acquired for BSF Battalion and broadening of National
Highways. It seems, the company suffered financial doldrums and instant Company
Petition No.999 of 2000 came to be instituted and admitted by an order dated 26
March 2018. Eventually, the company Petition came to be allowed vide order dated 28
June 2018 and the Official Liquidator, High Court, Bombay, came to be appointed as
the Liquidator of M/s. Synthetics.
11. In the meanwhile, ICICI Bank claiming to be the secured creditor, had
instituted a suit being Suit No.3821 of 1999 for recovery. Initially, the Court Receiver
came to be appointed in respect of the properties of M/s. Synthetics. Upon transfer
of the suit to DRT, pursuant to an order dated 26 April 2017, DRT appointed its
Receiver in place of High Court Receiver.
12. The secured creditor, in the intervening period, purportedly moved
under the SARFAESI Act, and issued the possession notice under Section 13(4) of the
SARFAESI Act, 2002. Undisputedly, consequent to the said notice, the Intervener
moved SA No.150 of 2018 before the DRT, Lucknow, to assail action initiated by the
secured creditor under the SARFAESI Act. As noted above, pursuant to the
statement made on behalf of the secured creditor, the said SA No.150 of 2018 came to
be disposed of.
13. The controversy surrounds around the application preferred by the
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secured creditor seeking to replace the Receiver, DRT, quash the sale notice issued by
the DRT and permit the sale of the company's assets through the Official Liquidator
and the order thereon dated 18 November 2018 and the subsequent order dated 10
October 2020 in Company Application No.346 of 2019, whereby the Recovery Officer,
DRT, was directed to hand over possession of the Bareilly property within 8 weeks
with permission to secured creditor to conduct sale of the properties at Bareilly, U.P.
14. Whether those orders, especially the latter one, are obtained by fraud, is
the pivotal question ?
15. Mr. Singh, learned Senior Advocate for the Intervener urged with a
degree of vehemence that the sequence of events and the perusal of the record
indicate that the secured creditor had obtained the aforesaid orders by resorting to
fraudulent practices. Mr. Singh submitted that the secured creditor suppressed the
facts and proceedings before the DRT, Lucknow, as well as before this Court, which at
the given point of time, were inconvenient and could have proved difficult in obtaining
the reliefs which the secured creditor surreptitiously obtained.
16. Mr. Singh would urge that the secured creditor practiced fraud at three
stages. Firstly, despite being a party to SA No.150 of 2018 and having filed reply
therein in the month of August 2018, when the secured creditor filed Company
Application (L) No.647 of 2018 on 24 November 2018, the secured creditor did not
disclose, (i) the pendency of the Intervener's SA No.150 of 2018 before the DRT,
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Lucknow, (ii) interest of the Intervener in the subject lands and (iii) that certain
portions of the said land were acquired by and in possession of the defence
installations and highways authority. Mr. Singh would urge that though the secured
creditor had referred to the possession notice under Section 13(4) of the SARFAESI
Act, dated 29 March 2018, yet it deliberately suppressed the subsequent developments
with regard to the said notice in the form of challenge thereto in SA No.150 of 2018.
17. Mr. Singh would urge that it was incumbent upon the secured creditor to
implead the Intervener - State of Uttar Pradesh as party Respondent in Company
Application (L) No.647 of 2018 in which, eventually, by consent of the parties, the
DRT Receiver's sale notice was set aside and the sale of the assets of the company was
permitted to be carried out by the Official Liquidator by an order dated 28 November
2018.
18. The second count of fraud, according to Mr. Singh, was in the
suppression of the aforesaid order dated 28 November 2018 whereby, with the consent
of the parties, the subject lands were permitted to be sold through the Official
Liquidator, before the DRT Lucknow on 11 March 2019, when a statement was made
that the secured creditor did not wish to proceed under the SARFAESI Act. This
statement on behalf of the Secured Creditor, Mr. Singh urged, made the Intervener to
not press SA No.150 of 2018. Had the Intervener been made aware of the
developments in the instant Petition, especially the order dated 28 November 2018,
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the Intervener would have assessed its position before withdrawing SA No.150 of
2018. The third act of fraud, on which a particular emphasis was laid by Mr. Singh,
was that after having made a statement that the secured creditor would not proceed
under the SARFAESI Act, and thereby induced the Intervener to withdraw the
challenge to an action under the SARFAESI Act, the secured creditor clandestinely
moved this Court with Company Application No.348 of 2019 seeking modification of
the order dated 28 November 2018 and sought further directions for sale of the assets
of the company (in liquidation), including the subject property, invoking the
provisions of the SARFAESI Act. Mr. Singh would urge, in this application, the
secured creditor deliberately suppressed the proceedings before the DRT, Lucknow in
SA No.150 of 2018 and the withdrawal thereof in view of the statement on behalf of
the secured creditor and the existence of defence installations and highway in portions
of the subject land. All these events were actuated by a design to obtain favourable
orders, submitted Mr. Singh.
19. Mr. Singh would urge that such suppression of vital facts constitutes an
egregious fraud. Reliance was placed on the decisions of the Supreme Court in the
case of Bhaskar Laxman Jadhav and Ors. V/s. Karmveer Kakasaheb Wagh
Education Societyand Ors.1, A.V.Papayya Sastry and Ors. V/s. Govt. of A.P. and
Ors.2, Meghmala and Ors. V/s. Narasimha Reddy and Ors. 3, and Hamza Haji
1 (2013) 11 SCC 531
2 (2007) 4 SCC 221
3 (2010) 8 SCC 383
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V/s. State of Kerala and Anr.4, and The State of Maharashtra and Adarsh Water
Parks and Resorts Pvt. Ltd. V/s. Abdul Rashid Abdul Rehman Yusuf and Ors.5.
20. Mr. Dhond, learned Senior Advocate for the secured creditor, stoutly
countered the submissions on behalf of the Intervener. First and foremost, Mr. Dhond
would urge, the instant application does not deserve to be entertained as it has been
filed in a disposed of proceeding. If at all the State of Uttar Pradesh is aggrieved by
order dated 19 October 2020, it was incumbent upon the Intervener to assail the
legality of the said order in an appropriate proceeding. It was further submitted that
in the instant application, the Intervener does not seek restoration of Company
Application No.346 of 2019. In the absence of such prayer, the instant application
does not deserve to be entertained.
21. Mr. Dhond made an endeavour to draw home the point that the
Intervener has, otherwise, no interest in the subject property. Contesting the claim of
the Intervener that it is the owner of the said property or that the title of the subject
property had not vested in the company ( in liqn.), Mr. Dhond would urge that the
Deed of Transfer clearly indicates that the subject property absolutely vested in the
company ( in liqn.) and the Intervener had no subsisting title thereto. Therefore, the
submission on behalf of the applicant that the company ( in liqn. ) could not have
mortgaged the said land and created the security interest thereon, does not merit
4 (2006) 7 SCC 416
5 IA 1575 of 2022
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acceptance.
22. Thirdly, Mr. Dhond would urge, the Intervener despite having asserted title
over the subject property had never taken any steps to repossess the subject property.
Nor the Intervener had lodged any claim with the Official Liquidator. Fourthly, Mr.
Dhond would urge, the Intervener has not assailed any of the orders passed by this
Court in the suit instituted for recovery of money or in the Company Application.
Without assailing those orders in the manner known to law, the Intervener cannot be
permitted to seek recall or modification of the order dated 19 August 2020.
23. Mr. Dhond made a strenuous effort to demonstrate that the secured
creditor had not committed any fraud. It was submitted that the Intervener was
neither a necessary nor a proper party to the application made before the company
court. The alleged suppression of facts and proceedings before the Company Court,
before the DRT, Lucknow, and the facts and proceeding in SA No.150 of 2018, in
Company Application No.346 of 2019, were, according to Mr. Dhond, imaginary and
against the weight of the record. Mr. Dhond would urge that when the statement was
made before the DRT, Lucknow, the lenders of the company in liquidation had not
resolved to pursue their remedies under the SARFAESI Act, and, therefore, at that
stage the statement was made on behalf of the secured creditor that it did not wish to
proceed under the SARFAESI Act. Therefore, the contention that the suppression of
the said proceeding before this Court constitutes fraud, is wholly untenable.
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24. Placing reliance on Section 13(9) of SARFAESI Act, Mr. Dhond
submitted that it is well recognized that where the company is wound up, the secured
creditor could opt to realize its security instead of proving its claim under the winding
up. It was pursuant to the decision taken in the joint lenders meeting on 18 June 2018,
the secured creditor preferred Company Application No.346 of 2019. Mr. Dhond
would urge, the acts and omissions on the part of the Receiver, DRT, which were
prejudicial to the interest of the secured creditor, forced the lenders to take a decision
to realise the security standing outside the winding up process/mechanism. Such a
decision, which the secured creditor is authorised by law, cannot said to be a
fraudulent act.
25. Mr. Dhond further submitted that the Official Liquidator who
represented the company in liquidation was very much a party before the DRT,
Lucknow as well as before this Court. Therefore, it cannot be said that there was a
deliberate suppression of facts. Non-impleadment of Intervener as party Respondent,
according to Mr. Dhond, was of no consequence as the applicant is neither necessary
nor a proper party and the Intervener has its remedies under the provisions of
SARFAESI Act.
26. Lastly, it was submitted that whenever the secured creditor proceeds
under the SARFAESI Act, the Intervener would have opportunities to assail the said
action before the tribunal under the SARFAESI Act. Therefore, no case is made out
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either to allow the Intervention or to recall the order dated 19 October 2020,
submitted Mr. Dhond.
27. I have given anxious consideration to the rival submissions canvassed
across the bar. The uncontroverted facts have been noted above.
28. At the outset, it must be noted that the question as to whether the State
of Uttar Pradesh still has subsisting interest in the subject property, or ownership still
vests in the State of Uttar Pradesh, is a matter which cannot be delved into and
adjudicated in this proceeding. The submissions canvased on behalf of both the
parties, placing reliance on the recitals in the Agreement dated 19 June 1960 and the
Deed of Transfer dated 29 April 1961, therefore, do not deserve elaborate
consideration. Whether the applicant - State of Uttar Pradesh had the right to take
back the possession of the subject property for the alleged breach of the terms of the
Agreement and Deed of Transfer and whether its right of re-entry was perfected, are
the issues which require determination in an appropriate proceeding before an
appropriate forum.
29. In my view, in the instant application, the only question that warrants
determination is whether the orders, referred above, especially the order dated 19
October 2020 was obtained by fraud or misrepresentation of such magnitude as to
erode their sanctity. Before exploring an answer, in the backdrop to the facts, it may be
apposite to note the nature and connotation of fraud in a judicial proceeding. Any
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conduct which is actuated by the design to obtain an unfair advantage over the other
side and is based on falsehood is firmly deprecated by the courts.
30. A useful reference in this context can be made to the judgment of the
Supreme Court in the case of S.P.Chengalvaraya Naidu V/s. Jagannath6 wherein
the vitiating effect of fraud was tersely put in the opening para of the Judgment :
"1. Fraud avoids all judicial acts, ecclesiastical or temporal" observed Chief
Justice Edward Coke of England about three centuries ago. It is the settled
proposition of law that a judgment or decree obtained by playing fraud on the
court is a nullity and non est in the eyes of law. Such a judgment/decree by
the first court or by the highest court has to be treated as a nullity by every
court, whether superior or inferior. It can be challenged in any court even in
collateral proceedings.
31. In the case of Meghmala and Ors. (supra), the Supreme Court referred
to a large body of precedents and observed that it is a settled position of law that where
the applicant gets an order/office by making misrepresentation or by playing fraud
upon the competent authority, such order cannot be sustained in the eye of law. The
observations in paragraphs 34 and 36 are material and, hence, extracted below :
"34. An act of fraud on court is always viewed seriously. A collusion or
conspiracy with a view to deprive the rights of the others in relation to a
property would render the transaction void ab initio. Fraud and deception are
synonymous. Although in a given case a deception may not amount to fraud,
fraud is anathema to all equitable principles and any affair tainted with fraud
cannot be perpetuated or saved by the application of any equitable doctrine
6 (1994) 1 SCC 1
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including res judicata. Fraud is proved when it is shown that a false
representation has been made (i) knowingly, or (ii) without belief in its truth,
or (iii) recklessly, careless whether it be true or false. Suppression of a
material document would also amount to a fraud on the court. (Vide S.P.
Changalvaraya Naidu (supra); Gowrishankar & Anr. Vs. Joshi Amba Shankar
Family Trust & Ors. AIR 1996 SC 2202; Ram Chandra Singh Vs. Savitri Devi
& Ors. (2003) 8 SCC 319; Roshan Deen Vs. Preeti Lal AIR 2002 SC 33; Ram
Preeti Yadav Vs. U.P. Board of High School & Intermediate Education AIR
2003 SC 4628; and Ashok Leyland Ltd. Vs. State of Tamil Nadu & Anr. AIR
2004 SC 2836).
......
36. From the above, it is evident that even in judicial proceedings, once a
fraud is proved, all advantages gained by playing fraud can be taken away. In
such an eventuality the questions of non-executing of the statutory remedies
or statutory bars like doctrine of res judicata are not attracted. Suppression of
any material fact/document amounts to a fraud on the court. Every court has
an inherent power to recall its own order obtained by fraud as the order so
obtained is non est."
32. In the backdrop of the aforesaid enunciation of law, the submission of
Mr. Dhond that the Intervener cannot seek the reliefs by virtue of instant application
in a disposed of proceeding cannot be acceded to unreservedly. If the element of fraud
or misrepresentation in obtaining order dated 19 October 2020 in Company
Application No.346 of 2019 is made out to the satisfaction of the Court, the technical
objection as to the maintainability of an application in a disposed of proceeding does
not commend itself. It is well neigh settled that fraud vitiates everything. A decree or
order obtained by fraud is non-est in the eye of law. The nullity of such decree or
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order obtained by fraud can be agitated in any proceeding and at any stage, despite
finality having been attached to the proceeding. The issues of locus and procedural
challenges, thus, stand relegated to a secondary stage and do not preclude the Court
from examining the allegations of fraud and also making a declaration to that effect
striping the order of all its cloak of legality and sanctity, provided clear case of fraud is
made out.
33. What constitutes fraud in judicial proceeding and the consequences the
fraud entails were illuminatingly postulated by the Supreme Court in the case of
A.V.Papayya Sastry and Ors. (supra), on which reliance was placed by Mr. Singh, in
the following words :
"21. Now, it is well settled principle of law that if any judgment or
order is obtained by fraud, it cannot be said to be a judgment or order in law.
Before three centuries, Chief Justice Edward Coke proclaimed :
"Fraud avoids all judicial acts, ecclesiastical or temporal".
22. It is thus settled proposition of law that a judgment, decree or
order obtained by playing fraud on the Court, Tribunal or authority is a nullity
and non est in the eye of law. Such a judgment, decree or order by the first
Court or by the final Court has to be treated as nullity by every Court,
superior or inferior. It can be challenged in any Court, at any time, in appeal,
revision, writ or even in collateral proceedings.
23. In the leading case of Lazarus Estates Ltd. V/s. Beasley, (1956) 1
ALL ER 341, Lord Denning observed :
"No judgment of a court, no order of a Minister, can be allowed
to stand, if it has been obtained by fraud.
24. In duchess of Kingstone, Smith's Leading Cases, 13th Edn., p.644,
explaining the nature of fraud, de Grey, C.J. stated that though a judgment
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would be res judicata and not impeachable from within, it might be
impeachable from without. In other words, though it is not permissible to
show that the court as 'mistaken', it might be shown that it was 'misled'.
There is an essential distinction between mistake and trickery. The clear
implication of the distinction is that an action to set aside a judgment cannot
be brought on the ground that it has been decided wrongly, namely, that on
the merits, the decision was one which should not have been rendered, but it
can be set aside, if the court was imposed upon or tricked into giving the
judgment.
25. It has been said; Fraud and justice never dwell together ( fraus et
jus nunquam cohabitant); or fraud and deceit ought to benefit none ( fraus et
dolus nemini patrocinari debent).
26. Fraud may be defined as an act of deliberate deception with the
design of securing some unfair or undeserved benefit by taking undue
advantage of another. In fraud one gains at the loss of another. Even most
solemn proceedings stand vitiated if they are actuated by fraud. Fraud is thus
an extrinsic collateral act which vitiates all judicial acts, whether in rem or in
personam. The principal of 'finality of litigation' cannot be stretched to the
extent of an absurdity that it can be utilized as an engine of oppression by
dishonest and fraudulent litigants."
34. On the aforesaid anvil, reverting to the facts of the case, it is
incontrovertible that SA No.150 of 2018 was withdrawn by the State of Uttar Pradesh
upon a statement having been made on behalf of the secured creditor that it was not
proceeding under the provisions of the SARFAESI Act, and, thus, there was no cause
of action. In the said application, the State of Uttar Pradesh had, inter alia, sought
quashing of the notice dated 29 March 2018 issued by the secured creditor under
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Section 13 of the SARFAESI Act, and the consequential action /proceeding initiated
by the secured creditor under the said Act.
35. Evidently, the State of Uttar Pradesh was made to alter its position by
withdrawing the challenge to the action and the measures initiated under the
SARFAESI Act, in view of the said statement. On that day i.e. 11 March 2019 when
the said SA No.150 of 2018 was disposed as not pressed by the State of Uttar Pradesh,
the secured creditor had already obtained an order in Company Application (L)
No.647 of 2018, albeit by consent of the parties, that the sale notice issued by the
Recovery Officer, DRT, be set aside and the sale of the subject property be conducted
through the Office of the Official Liquidator.
36. Indisputably, the said facts were not brought to the notice of DRT,
Lucknow. The submission of Mr.Dhond that the Official Liquidator was very much a
party before the DRT, Lucknow, and, therefore, was aware of the developments in the
intervening period, especially the order dated 28 November 2018 may carry some
substance. However, the subsequent developments and the non-disclosure do not
appear to be innocuous.
37. In Company Application No.346 of 2019, the Secured Creditor, inter
alia, prayed that the decision of the secured creditors taken in the JLM held on 18 June
2019 be taken on record and pursuant thereto, the sale of the assets of the company in
liquidation be conducted under the provisions of the SARFAESI Act and the order
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dated 28 November 2018 may be modified and to that extent, the Official Liquidator
be discharged from his duties and the Receiver, DRT be also discharged from his
duties. This application was preferred in the month of July 2019. The averments in
this application, rather the omissions therein, are of material significance.
38. The secured creditor referred to the fact that the possession notice
under Section 13(4) of the SARFAESI Act, was issued on 29 March 2018 and
symbolic possession was taken. However, the fact that the State of Uttar Pradesh had
assailed the said action under the SARFAESI Act, by preferring the SA No.150 of
2018 before the DRT, Lucknow, and the said application came to be disposed of as not
pressed, upon the statement being made on behalf of the secured creditor that it did
not wish to proceed under the SARFAESI Act, were conspicuous by their absence,
though, the secured creditor adverted to the facts, which transpired, since the
institution of Suit No.3821 of 1999 by ICICI Bank and the appointment of the Court
Receiver in the year 2002. The Secured Creditor asserted that as it had lost faith in
the functioning of the Receiver appointed by the DRT and the Court had by an order
dated 28 November 2018 permitted that the sale be conducted through the Official
Liquidator, the secured creditor decided to sell the secured assets under the provisions
of the SARFAESI Act.
39. Mr. Dhond submitted that the secured creditor is entitled in law to stand
outside the winding up proceeding and enforce its security. There can be no quarrel
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with this proposition about the right of the secured creditor to opt out of the
liquidation proceeding and realize its security. The provisions contained in Sections
529 and 529A of the Companies Act, 1956 are abundantly clear.
40. A useful reference in this context can be made to a three Judge Bench
judgment of the Supreme Court in the case of Jitendra Nath Singh V/s. Official
Liquidator and Ors.7 wherein the Supreme Court expounded the import of the
provisions contained in Section 529 and 529A of the Companies Act, 1956. The
Supreme Court culled out the propositions in paragraph No.16 as under :
"16. Our conclusions on interpretation of the provisions of Sections
529 and 529A of the Companies Act, therefore, are:
16.1 A secured creditor has only a charge over a particular property or
asset of the company. The secured creditor has the option to either realize
his security or relinquish his security. If the secured creditor relinquishes his
security, like any other unsecured creditor, he is entitled to prove the debt
due to him and receive dividends out of the assets of the company in the
winding up proceedings. If the secured creditor opts to realize his security,
he is entitled to realize his security in a proceeding other than the winding up
proceeding but has to pay to the liquidator the costs of preservation of the
security till he realizes the security.
16.2 Over the security of every secured creditor, a statutory charge
has been created in the first limb of the proviso to clause (c) of sub- section
(1) of Section 529 of the Companies Act in favour of the workmen in respect
of their dues from the company and this charge is pari passu with that of the
secured creditor and is to the extent of the workmen's portion in relation to
the security of any secured creditor of the company as stated in clause (c) of
sub- section (3) of Section 529 of the Companies Act.
7 (2013) 1 SCC 462
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16.3 Where a secured creditor opts to realize the security then so
much of the debt due to such secured creditor as could not be realized by
him by virtue of the statutory charge created in favour of the workmen shall
to the extent indicated in clause (c) of the proviso to sub-section (1) of
Section 529 of the Companies Act rank pari passu with the workmen's dues
for the purposes of Section 529A of the Companies Act.
16.4 The workmen's dues and where the secured creditor opts to
realize his security, the debt to the secured creditor to the extent it ranks pari
passu with the workmen's dues under clause (c) of the proviso to sub-section
(1) of Section 529 of the Companies Act shall be paid in priority over all
other dues of the company." (emphasis supplied)
41. There can be no duality of opinion about the rights of the secured
creditor to enforce his security. The question that merits consideration in this
application is, whether the secured creditor obtained the order for sale of the subject
property by suppressing the fact that when it had initially proceeded to realize the
security under the SARFAESI Act, the actions were challenged by the State of Uttar
Pradesh and it had given up that course at that point of time.
42. Though, it bears repetition, the chronology of events needs to be noted.
The possession notice under Section 13(4) of the Act, 2002 was issued by the secured
creditor on 29 March 2018. In the month of May 2018, the State of Uttar Pradesh
filed SA No.150 of 2018 before the DRT, Lucknow, assailing the said action. On 28
June 2018, in Company Petition No.999 of 2000, this Court ordered winding up of the
company and appointed the Official Liquidator. In the month of August 2018, the
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secured creditor filed reply in SA No.150 of 2018. Without adverting to the
proceedings in SA No.150 of 2018, the secured creditor initially filed Company
Application (L) No.647 of 2018 challenging the sale notice by the Receiver, DRT and
seeking direction to the Official Liquidator to take possession / take control of all the
assets of the company in liquidation. On 28 November 2018, by consent of the
parties, the sale notice issued by the Receiver, DRT was set aside and the sale of the
assets of the company was ordered through the Official Liquidator. The Official
Liquidator took possession of the subject property on 4 January 2019. On 11 March
2019, the State of Uttar Pradesh is made to believe that the secured creditor would not
proceed under the SARFAESI Act, and withdraw SA No.150 of 2018. In the month of
July 2019, the secured creditor again moved this Court in Company Application
No.346 of 2019 seeking modification of the order dated 28 November 2018, so as to
allow the secured creditor to proceed under the provisions of the SARFAESI Act. On
19 October 2020, this Court allowed the prayers in the said application and directed
the Receiver, DRT to handover possession of the properties, including the subject
properties to the secured creditor, with liberty to the secured creditor to conduct the
sale in consultation with the Official Liquidator.
43. In the said application Company Application No.346 of 2019, there was
no reference whatsoever to the proceeding in SA No.150 of 2018, the stand of the
State of Uttar Pradesh therein; of which the secured creditor was fully aware of, the
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fact that the secured creditor had made the statement that it would not proceed under
the SARFAESI Act, and, thereupon, the said SA No.150 of 2018 was disposed of.
44. I find it difficult to accede to the submission that it was not incumbent
upon the secured creditor to disclose the aforesaid proceeding and the developments
therein. It is trite, it is not suppression of every fact which attaches a taint of fraud to
the party which has obtained an order from the Court or tribunal. The fact suppressed
ought to be of such a nature that, had the Court or Tribunal been aware of the said
fact, it would have influenced a particular decision of the Court or Tribunal. However,
it is not for a party to decide on its own as to what constitutes material facts and
withhold the facts which it considered immaterial. The party is enjoined to place all
the facts before the Court.
45. The nature of duty of disclosure was expounded by the Supreme Court
in the case of Bhaskar Laxman Jadhav and Ors. (supra), in the context of a
submission that the Petitioners therein were guilty of suppression of facts, especially
the rejection of an earlier application for extension of time, and a counter thereto on
the premise that the fact which was allegedly suppressed was not material in view of
subsequent developments. The Supreme Court observed, inter alia, as under :
"44. It is not for a litigant to decide what fact is material for
adjudicating a case and what is not material. It is the obligation of a litigant to
disclose all the facts of a case and leave the decision-making to the court.
True, there is a mention of the order dated 2-5-2003 in the order dated 24 July
2006 passed by the JCC, but that is not enough disclosure. The petitioners
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have not clearly disclosed the facts and circumstances in which the order
dated 2-5-2003 was passed or that it has attained finality.
.........
47. A mere reference to the order dated 2-5-2003, en passant, in the
order dated 24-07-2006 does not serve the requirement of disclosure. It is
not for the court to look into every word of the pleadings, documents and
annexures to fish out a fact. It is for the litigant to come upfront and clean
with all material facts and then, on the basis of the submissions made by the
learned Counsel, leave it to the court to determine whether or not a particular
fact is relevant for arriving at a decision. Unfortunately, the petitioners have
not done this and must suffer the consequence thereof." (emphasis supplied)
46. It would be contextually relevant to note the observations of the
Supreme Court in the case of Dalip Singh V/s. State of Uttar Pradesh and Ors. 8
where the erosion in the value of making a full fledged disclosure, even of an
inconvenient fact, was traced in a historical perspective. The observations in
paragraphs 1 and 2 read as under :
"1.For many centuries, Indian society cherished two basic values of life i.e.,
`Satya' (truth) and `Ahimsa' (non-violence). Mahavir, Gautam Buddha and
Mahatma Gandhi guided the people to ingrain these values in their daily life.
Truth constituted an integral part of justice delivery system which was in
vogue in pre-independence era and the people used to feel proud to tell truth
in the courts irrespective of the consequences. However, post-independence
period has seen drastic changes in our value system. The materialism has
over-shadowed the old ethos and the quest for personal gain has become so
intense that those involved in litigation do not hesitate to take shelter of
falsehood, misrepresentation and suppression of facts in the court
8 (2010) 2 SCC 114
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proceedings.
2. In last 40 years, a new creed of litigants has cropped up. Those
who belong to this creed do not have any respect for truth. They shamelessly
resort to falsehood and unethical means for achieving their goals. In order to
meet the challenge posed by this new creed of litigants, the courts have, from
time to time, evolved new rules and it is now well established that a litigant,
who attempts to pollute the stream of justice or who touches the pure
fountain of justice with tainted hands, is not entitled to any relief, interim or
final." (emphasis supplied )
47. In the case of S.P.Chengalvaraya Naidu V/s. Jagannath (supra), the
Supreme Court, inter alia, observed that, a litigant, who approaches the Court is
bound to produce all the documents executed by him which are relevant to the
litigation. If he withholds a vital document in order to gain an advantage on the other
side then he would be guilty of playing fraud on the court as well as the opposite party.
48. The legal position has, thus, crystalized to the effect that the suppression
of a material fact or document stands on an equal degree of deviousness as a positive
misrepresentation. Suppression of any material fact/document which a party owes a
duty to disclose to the court, constitutes a fraud.
49. The aforesaid being the position in law, the non-disclosure of the
proceedings in SA No.150 of 2018, especially the stand of the secured creditor therein,
cannot be said to be immaterial or inconsequential. The reason is not far to seek.
50. The State of Uttar Pradesh was made to believe that a state of affairs
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exists. The State of Uttar Pradesh altered its position on the basis of the stand taken
by the secured creditor. Having made the State of Uttar Pradesh to alter its position
and, obtained the orders of sale through the Official Liquidator, the secured creditor
could not have again sought assistance of this Court in again proceeding under the
SARFAESI Act without disclosing the facts which transpired in SA No.150 of 2018.
In the process, the secured creditor got rid of the Receiver, DRT with a direction to
the latter to deliver the possession of the assets of the company in liquidation,
including the subject property.
52. The submission on behalf of the secured creditor that the State of Uttar
Pradesh has to work out its remedies under the provisions of the SARFAESI Act, and
cannot invoke the limited jurisdiction of the Company Court, loses sight of the fact
that the State of Uttar Pradesh did resort to the remedies under the SARFAESI Act at
the first possible opportunity when the possession notice under Section 13(4) of the
SARFAESI Act, was published in the newspaper on 4 April 2018. The State of Uttar
Pradesh was made to believe that the secured creditor would not pursue its remedies
under the SARFAESI Act. It would be wholly unjust and iniquitous to urge that the
State of Uttar Pradesh must again resort to the proceedings before the Tribunal, in the
event the secured creditor initiates measures to sell the subject property.
53. The conspectus of aforesaid consideration is that the secured creditor
has obtained the order dated 19 October 2020 by non-disclosure of material facts. The
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Intervener was made to believe in a state of affairs, which the secured creditor
professed to alter under few months. In a sense, the State of Uttar Pradesh was
deprived of the opportunity to seek adjudication of the rights it asserts and test the
legality and validity of the action initiated by the secured creditor under the provisions
of the SARFAESI Act.
54. The relative merits of the case of the Intervener, in my view, are not
required to be delved into, at this stage. Intervener may or may not succeed in either
establishing its claim over the subject property or assailing the legality of the action of
the secured creditor. That is besides the point. The Intervener, therefore, deserves an
opportunity to agitate its grievance. The aforesaid course of providing an opportunity
of hearing to the Intervener would not cause any prejudice to the rights of the parties
to the above Petition, including the secured creditor. I am, therefore, inclined to allow
the application.
55. Hence, the following order :
ORDER
(i) The application stands partly allowed.
(ii) The order dated 19 October 2020 passed in Company Application
No.346 of 2019 stands recalled.
(iii) Company Application No.346 of 2019 stands restored to file.
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(iv) The Applicant - Intervener be impleaded as party Respondent in
Company Application No.346 of 2019.
(v) Necessary amendment be carried out within a week's time.
(vi) The Intervener - newly added Respondent shall file Affidavit in
Reply to the Company Application No.346 of 2019 within a period of three weeks.
(vii) In the event the secured creditor has obtained possession of the
subject property, it shall maintain status quo, subject to further orders to be passed in
Company Application No.346 of 2019.
(viii) In the circumstances of the case, there shall be no order as to
costs.
( N.J.JAMADAR, J. )
Signed by: S.S.Phadke
Designation: PS To Honourable Judge
Date: 20/12/2023 18:00:34
