In The Matter Of Mp Plywood Ltd. vs ..........
2019 Latest Caselaw 2045 Del

$~CP-14
*    IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                             Date of decision: 16.04.2019
+      CO.PET. 247/1997
       IN THE MATTER OF MP PLYWOOD LTD.          ..... Petitioner
                 Through Mr.D.Bhattacharya, Adv. for the OL.
                         Mr.Rahul Kaushik and Mr.Dhanesh Kumar,
                         Advs. for State of M.P.
                         Mr.Sumit Nagpal, Adv. for IFCI Ltd.
                         Ms.Swaymsidha Patnaik and Mr.Rajiv
                         Gupta, Advs. for IDBI
                         Mr.Indrani Makheeja, Adv. for IARC.
                         Mr.Alok Kr.Aggarwal, Ms.Anushruti and
                         Ms.Kritika Singh, Advs.

       CORAM:
       HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J.(ORAL)

CA No.1394/2014
1.     This application is filed under Rule 9 of the Companies (Court) Rules,
1959 seeking a direction to the District Trade and Industry Centre to transfer
the property situated in Industrial Area Imlikhera, District Chhindwara,
Madhya Pradesh totalling 13.50 acres in favour of the applicant and to
cancel the impugned communications dated 03.03.2014 and 25.03.2014
issued by the G.M. District Trade and Industry Centre, Imlikhera Industrial
Area, District Chhindwara, Madhya Pradesh cancelling the lease.
2.     The case of the applicant is that in 1982 the Directorate of Industries,
Bhopal allotted land to the respondent company for the purpose of

construction and establishing thereon a factory for the manufacturing of Veneer Ply Wood. Possession was handed over in 1982. In 1983, the said

unit entered into production.

3. On 27.11.2003 the OL attached to this court was appointed as the liquidator. The predecessor of the applicant participated in the auction conducted by the court on 03.03.2005. The predecessor of the applicant was declared the successful bidder at a bid of Rs.1.16 crores. On 17.03.2005 the predecessor of the applicant was permitted to nominate M/s Ideal Enterprises Pvt. Ltd. the applicant as its nominee. On 27.05.2005 the full amount was paid by the applicant. On 30.05.2005 this court confirmed the sale of the property in favour of the applicant.

4. It is stated that the applicant in 2007 approached the respondent District Trade and Industries Centre, District Chhindwara, Madhya Pradesh for starting his factory. The applicant had also been accompanied by the official of the OL on 16.04.2009 for registration of the sale deed. However, it is pointed out that at the said time, the property was leasehold and a sale certificate was required to be issued.

5. It is in this background that the impugned communication was received by the applicant company from the concerned lessor cancelling the lease of the property in question vide communications dated 03.03.2014 and 25.03.2014. In these facts, the applicant seeks a direction to the OL to forthwith to issue a sale certificate in favour of the applicant and a further direction be issued to the District Trade and Industries Centre, Imlikhera Industrial Area, District Chhindwara, Madhya Pradesh to carry out transfer of the land in favour of the applicant and to cancel the impugned communications dated 03.03.2014 and 25.03.2014 issued by the GM District Trade and Industries Centre, Imlikhera Industrial Area, District Chhindwara, Madhya Pradesh.

6. The District Trade and Industries Centre, Chhindwara, Madhya Pradesh has filed its reply. According to the said reply, they have pointed out that on 15.05.2007 M/s Ideal Enterprises/applicant was duly informed that for the transfer of lease deed executed in favour of the company under liquidation, it is necessary to register the unit with the District Trade & Industries Centre, Chhindwara. The applicant was also asked to deposit arrears of lease rent due on the company in liquidation. Apart from the arrears of lease rent due various other objections have been taken stating that the machinery and the factory structure was not available and this is in violation of the terms of the lease.

7. The learned counsel appearing for the non-applicant submits that the dues are more than Rs.4.50 crores. Essentially the plea is about non-payment of the rental dues which are pending prior to the confirmation of the sale done by this court in favour of the applicant. The applicant is ready to pay the lease rental due after the confirmation of the sale.

8. It is in this background that the Commissioner of Industries, Directorate of Industries, Madhya Pradesh has on 03.03.2014 cancelled the allotment of land and lease deed in favour of the respondent company.

9. Reference in this context may be had to the section 537 of the Companies Act, 1956 which read as follows:

"537. Avoidance of certain attachments, executions, etc., in winding up by or subject to supervision of Court. (1) Where any company is being wound up by or subject to the supervision of the Court-

(a) any attachment, distress or execution put in force, without leave of the Court, against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the Court, of any of the

properties or effects of the company after such commencement; shall be void.

(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government.] Offences antecedent to or in course of winding up"

Hence, any attachment, distress or execution that was put in force without leave of the court, against the estates or effects of the company after the commencement of the winding up is void.

10. In this case, the OL has been appointed as the liquidator on 27.11.2003. The property was put to auction in 2005. The lease has now been cancelled on 03.03.2014 primarily for non-payment of the dues which have not been paid.

11. Reference may be had to the relevant part of the two impugned communications written by the respondent, District Trade and Industries Centre, Chhindwara, Madhya Pradesh. Translated copy of the letter dated 03.03.2014 as filed by the applicant reads as follows:

"To, The General Manager District Vypar and Udyog Kendra Chhindwara Madhya Pradesh

Sub: In the context of the cancellation of the order of allotment of 13.5 acres land and lease date of M/s. M.P. Plywood Pvt. Ltd., Industrial Area, lmli Khera, The. Chhindwara, District Chhindwara, Madhya Pradesh

Ref: Letter No. 960 dt. 6.7.2013 of Joint Industrial Controller, Regional Industrial Office, Jabalpur.

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5. For auction of the immovable properties by the Liquidator on date 23.5.2005, the possession was given to M/s. Ideal Enterprises, New Delhi.

6. By the District Vypar Udyog Kendra to M/s. Ideal Enterprises by registration in the form of industrial unit and purchase of the property sold in auction direction were given for presentation of the sell details. In the transfer office, by M/s. Ideal Enterprises, from the District Vypar and Udyog Kendra, in connection with the abovesaid, no action has been taken till today and by M/s. Ideal Enterprises, being taken away by separating the instruments, machinery, and industrial shed, establishment on the land allotted to M/s. M.P. Plywood Pvt. Ltd., at present the abovesaid complete land is vacant. For this reason final notice has been issued on date 30.08.2012 by the District Vypar and Udyog Kendra, Chhindwara, which has been return back by the postal department. At the place of the unit by doing panchnama on date 12.10.2012 has been pasted.

In the unit purchased by the Liquidator, M/s. Ideal Enterprises, inspite of request of the District Vypar & Udyog Kendra, no action has been taken for transfer of the land and act the place ........ (illegible) remain outstanding. District Vypar and udyog Kendra Chhindwara and by regional industrial office Jabalpur, in connection with cancellation of the land have made their recommendation also. By keeping the abovesaid situation in view, by cancelling the allotment of 13.5 acre land allotted to M/s. M.P. Plywood Pvt. Ltd., Industrial Area, lmli Khera, Teh. lmli Khera, Dist. Chhindwara, lease deed is determinated.

Sd/Industrial Commissioner Madhya Pradesh"

12. Similarly, reference may be had to translated copy of the letter dated 25.03.2014 which reads as follows:

"To, M/s. M.P. Plywood Pvt. Ltd.

Industrial Area

lmli Khera, M.P.

Sub: Regarding cancellation of the allotment order for 13.5 acres land allotted in industrial area lmli Khera.

Ref: Letter No. ID/8(2)2013/727 dt. 3.3.2014 of the Industries Commissioner, Bhopal.

In the context of the subject mentioned, the allotment of 13.5 acres land and lease date to you in Industrial Area lmli Khera has been cancelled by the Industrial Commissioner, M.P. Bhopal vide order referred, the endorsement aware of has been done to you also. But immediate reference copy whereof is enclosed herewith.

On the abovesaid subject you are informed that in the time limit, take necessary action, otherwise for taking possession of the land, action shall be taken, the complete responsibility thereof shall be on you.

Sd/General Manager District Vypar and Udyog Kendra Chhindwara"

13. The communication dated 03.03.2014 appears to state that some procedural requirements have not been complied with by the applicant on account of which the lease has been cancelled. However, in the reply that has been filed by the respondent it is stated that the applicant was asked to deposit arrears of lease rent of the company in liquidation and to provide a copy of its challans. It appears that in the absence of the challans, the applicant was unable to complete any of the formalities. The only point that was stressed by the learned counsel who appeared for the state of M.P. was that the dues of the lessor had not been paid.

14. It is manifest that unpaid lease rentals till the date of auction was

completed had to be paid by the respondent company, which is now under liquidation. The said unpaid lease rentals would have to be recovered by the concerned department, i.e., Commissioner of Industries, Directorate of Industries, Madhya Pradesh from the OL as per law. On account of the non- payments of the said dues, the lease could not have been cancelled. As far as, unpaid lease rentals relating to the period after the auction was concluded, the same would be the liability of the applicant. The learned counsel for the applicant has clearly stated that they are willing to pay the said amount.

15. Reference may also be had to the judgment of the Supreme Court in the case of Phatu Rochiram Mulchandani v. Karnataka Industrial Areas Development Board & Ors., AIR 2014 SC 2700. That was a case in which respondent No.2 company was ordered to be wounded up and liquidation proceedings were pending. Respondent No.1 Board had allotted an industrial plot to the said respondent No.2 company on lease-cum-sale basis for a period of 11 years. The Board terminated the lease. The appellant/the promoter of respondent No.2 questioned the veracity of the orders on the ground that it was the property of the company which could not be released in favour of the Board.

16. The Supreme Court while interpreting section 537 of the Companies Act, held as follows:

"38. It is clear from the above that prior permission of the court is required in respect of any attachment, distress or execution put in force or for sale of the properties or effects of the company. We are of the opinion that the serving of cancellation notice simpliciter would not come within the mischief of this section as that by itself does not amount to attachment, district or execution etc. No doubt, after the

commencement of the winding up, possession of the land could not be taken without the leave of the court. Precisely for this reason the Board had filed the application seeking permission. But according to us no such prior permission was required before cancelling the lease. In fact, it is only after the cancellation of the lease that the Board would become entitled to file such an application under section 537 of the Act. Had the Board gone ahead further and taken the possession, after the cancellation and then approach the company judge, the situation which occurred in M/s. Anco Communication Ltd. (supra) would have prevailed. On the other hand, it would have been premature on the part of the Board to approach the company judgment for permission to resume the land without cancelling the lease in the first instance.

xxxxxx

40. Once the application for permission to resume the land is filed, undoubtedly it is permissible for the company judge to go into the validity of the action of the applicant. Thus, in the instant case the company judge could find out as to whether cancellation of lease is proper or not. The company judge could also go into the question as to whether the company had become the owner of the property, or it was only a lease. Company judge could also go into the question as to whether the property in question is required by the company and parameters of the provisions of section 535 of the Companies Act are satisfied or not."

17. Accordingly, it is quite clear that this court has power to adjudicate upon the validity of the cancellation of the lease; and has also the power to go into the question, whether cancellation of the lease is proper or not.

18. In this context reference may also be had to the judgment of the Supreme Court in the case of AI Champdany Industries Ltd. v. Official Liquidator & Anr., (2009) 4 SCC 486. That was a case in which the

concerned Municipality was claiming the arrears of property tax. The case of the auction purchaser there was that from the date of purchase it had paid all the municipal taxes. The Supreme Court noted that the dues in relation to the municipal taxes in terms of the Act, do not create any encumbrance on the property. The same would imply that the municipality be considered as an unsecured creditor. The Supreme Court held as follows:

"14. If the property tax was merely a statutory due without creating any encumbrance on the property which had cast a duty upon all the auction purchasers to make an investigation, it would mean that he must try to find out all the liabilities of the company in liquidation in their entirety.

15. Respondent-Municipality was an unsecured creditor. In that capacity it cannot stand on a higher footing than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realization of their dues from the sale proceeds.

16. Companies Act or any other law does not impose any additional obligation upon the purchaser to make an enquiry with regard to the liabilities of the companies other than those which would impede its value.

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24. The Municipal Corporation indisputably is not a preferential creditor.

25. Companies Act in relation to winding up of proceeding is otherwise a special law. While distributing the assets between the creditors and unsecured creditors, the provisions of Sections 529 and 530 must be complied with.

26. All claims against the companies were required to be filed before the liquidator until the property was sold as provided for

under Section 457 of the Companies Act. In terms of Section 456 thereof once an order for winding up is made the liquidator has to take into custody the properties, effects and actionable claims to which the company is or appears to be entitled. Section 528 provides that all debts payable on a contingency and all claims against the company, present or future are admissible to proof against the company. Section 529 provides for the same rule as in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Section 530 provides for certain priorities to secured creditors and other unsecured creditors.

27. Once the property is sold, the assets of the company are required to be distributed to the creditors in order of preference. As the respondent- Municipality was not a secured creditor, the impugned Judgment cannot be sustained.

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29. Dues of the Municipality would also not even otherwise come within the purview of the crown debt. Even a crown debt could be discharged only after the secured creditors stand discharged.

30. In Union of India and Ors. v. Sicom Ltd. and Anr. 2009(233)ELT433(SC), it is stated:

"9.Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the

Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one.

10. It is trite that when a Parliament or State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, the Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the tax- payer. This aspect of the matter has been considered by this Court in a series of judgments."

19. In the present case there is nothing to show that the dues for unpaid lease creates any encumbrance on the property. For the said unpaid lease rentals up-to the date the OL was in-charge i.e. upto the date of acceptance of the sale in favour of the applicant, the Directorate of Industries, State of Madhya Pradesh would be considered as an unsecured creditor and would be entitled to file its claim accordingly. The said department cannot cancel the lease which still remains in the name of the respondent company which is under liquidation on the ground of unpaid lease dues till the said date. For the subsequent period the applicant is ready to pay the lease dues. The concerned Commissioner of Industries, Madhya Pradesh has wrongly ignored the position and cancelled the lease which is in favour of the respondent company.

20. In the reply filed by the District Trade and Industries Centre,

Chhindwara, Madhya Pradesh reference is made to inability of the applicant to register its unit with the District Trade and Industries Centre, Chhindwara, Madhya Pradesh and to produce a copy of the registered sale deed of the unit purchased by it. Reliance is also placed on the communications dated 21.05.2009 and 30.07.2009 sent by the District Trade and Industries Centre, Chhindwara, Madhya Pradesh requesting the applicant to register its unit and to produce a copy of the registered sale deed and also to deposit arrears of rent due on the company under liquidation and to produce its challans. Essentially the grounds are linked to non-payment of the lease money by the respondent company which is under liquidation.

21. Accordingly, I quash the communication dated 03.03.2014 issued by the Commissioner of Industries, Directorate of Industries, Madhya Pradesh cancelling the lease in question. However, the above is subject to the department communicating within six weeks from the date of receipt of a copy of this order to the applicant the lease outstanding from the date of acceptance of the bid i.e. 30.05.2005 till date alongwith any other procedural formalities that the applicant is obliged to do. The necessary dues and the formalities shall be completed by the applicant within eight weeks from the date of receipt of the communication from the department. Regarding unpaid lease rentals for the period prior to the date when the bid was accepted, the department may lodge a claim with the OL as per law in the prescribed format within six weeks from the date of receipt of a copy of this order.

22. At this stage, the learned counsel appearing for The District Trade and Industries Centre, Chhindwara, Madhya Pradesh states that he is not appearing in this case but is appearing in some other matter for the State of Madhya Pradesh.

23. I have however noted the contents of the reply filed by the District Trade and Industries Centre, Chhindwara, Madhya Pradesh and do not propose to revoke the order merely because the learned counsel appearing for the State of Madhya Pradesh has belatedly after the order was dictated felt that he has wrongly appeared.

CO.PET. 247/1997 List on 21.08.2019.

JAYANT NATH, J.

APRIL 16, 2019/v corrected & released on 20.06.2019