Lalitaben Govindbhai Patel vs Gujarat State Financial ...
2021 Latest Caselaw 2455 Guj

            C/LPA/2480/2010                                       ORDER DT. 17/02/2021
      LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.




                   IN THEHIGHCOURTOF GUJARATAT AHMEDABAD

1.                    R/LETTERSPATENTAPPEALNO. 2480of 2010
                                        In
                     R/SPECIALCIVILAPPLICATIONNO. 12979of 2009
                                       With
2.                   R/SPECIALCIVILAPPLICATIONNO. 11116of 2008
                                       With
                     CIVILAPPLICATION(FORORDERS) NO. 1 of 2010
                                        In
                     R/SPECIALCIVILAPPLICATIONNO. 11116of 2008

==============================================================================
                LALITABEN GOVINDBHAI PATEL & 2 other(s)
                                Versus
            GUJARAT STATE FINANCIAL CORPORATION & 8 other(s)
==============================================================================

Appearance:
MR A.S. VAKIL(962)for the Appellant(s)No. 1,1.1,1.2,2,3- (Guarantorsof M/s. Ganpati Pulp
and PaperMills Ltd.)
MR ABHIJIT P JOSHI(1330)for the Respondent(s)No. 6 - Official Liquidator
MR B.H. BHAGAT(153)for the Respondent(s)No. 3,9 - Bankof Barodaand its Assignee
MR DEVANG D. TRIVEDI(2503)for the Respondent(s)No. 1 - Gujarat State Financial
Corporation
MR NANDISH Y. CHUDGAR(2011)for the Respondent(s)No. 5 - ShreeIndustriesLtd.
MR PRANAV G . DESAI(290)for the Respondent(s)No. 4
MR R.D. DAVE(264) for the Respondent(s)No. 2
==============================================================================
 CORAM: HONOURABLE DR. JUSTICE VINEET KOTHARI
        and
        HONOURABLE MS. JUSTICE GITA GOPI

                                      Date: 17/02/2021

                                ORALORDER

( PER: HONOURABLE DR. JUSTICE VINEET KOTHARI)

1. We have heard this matter at length on 04.02.2021, 09.02.2021 and today, 17.02.2021. All the learned counsels have made detailed submissions about the possibility of transfer of proceedings to the

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

National Company Law Tribunal (NCLT) under the provisions of the Insolvency and Bankruptcy Code, 2016 and the latest judgment of the Hon'ble Supreme Court in the case of Action Ispat and Power Pvt. Ltd. V. Shyam Metalics and Energy Ltd. reported in (2021) 224 Comp Cases 35 (SC) was also placed for our consideration.

2. We have perused that judgment in detail and vide Paragraph-22 of the said judgment, which is quoted below, the conclusion of the Hon'ble Supreme Court in the aforesaid case, after discussing the previous three judgments in (i) Jaipur Metals & Electricals Employees Organization V. Jaipur Metals & Electricals Ltd. reported in (2019) 4 SCC 227, (ii) Forech India Ltd. V. Edelweiss Assets Reconstruction Co. Ltd. reported in 2019 (18) SCC 549 and (iii) M/s. Kaledonia Jute & Fibres Pvt. Ltd. V. M/s. Axis Nirman & Industries Ltd. and Others reported in AIR 2021 SC 32, is that the proceedings of winding-up pending in the High Court under The Companies Act, 2013, can be transferred to the NCLT on the application of any of the parties in exercise of discretion under the 5th proviso to Section 434(1)(c) of The Companies Act, 2013, unless the winding-up proceedings pending before the High Court in respect of the Company is at an irreversible stage of winding-up and the High Court finds that it would amount to setting the clock back at that stage. If the proceedings are pending in the High Court at such an advanced stage, the Company Court must proceed with the winding-up instead of transferring the proceedings to the NCLT to be decided in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016. Whether such a stage is reached or not would depend upon the facts and circumstances of each case.

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

3. Paragraph-22 of the aforesaid judgment is quoted below for ready reference:-

"22. Given the aforesaid scheme of winding up under Chapter XX of the Companies Act, 2013, it is clear that several stages are contemplated, with the Tribunal retaining the power to control the proceedings in a winding up petition even after it is admitted. Thus, in a winding up proceeding where the petition has not been served in terms of Rule 26 of the Companies (Court) Rules, 1959 at a pre- admission stage, given the beneficial result of the application of the Code, such winding up proceeding is compulsorily transferable to the NCLT to be resolved under the Code. Even post issue of notice and pre admission, the same result would ensue. However, post admission of a winding up petition and after the assets of the company sought to be wound up become in custodia legis and are taken over by the Company Liquidator, section 290 of the Companies Act, 2013 would indicate that the Company Liquidator may carry on the business of the company, so far as may be necessary, for the beneficial winding up of the company, and may even sell the company as a going concern. So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT to now be decided in

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

accordance with the provisions of the Code. Whether this stage is reached would depend upon the facts and circumstances of each case.

23. In the facts of the present case, the concurrent finding of the Company Judge and the Division Bench is that despite the fact that the liquidator has taken possession and control of the registered office of the appellant company and its factory premises, records and books, no irreversible steps towards winding up of the appellant company have otherwise taken place. This being so, the Company Court has correctly exercised the discretion vested in it by the 5th proviso to section 434(1)(c). Resultantly, civil appeal arising out of SLP (Civil) No.26415 of 2019 stands dismissed.

Civil Appeal Nos. 4042-4043 of 2020 (arising out of SLP (Civil) Nos. 2033-2034 of 2020):

Given the fact that the matter has been transferred by the High Court to the NCLT to verify the necessary facts and circumstances of the case, after which relief can be given to the appellant herein, we do not find any reason to interfere with the aforesaid order. The appeals are therefore dismissed."

4. The earlier judgments of the Hon'ble Supreme Court, which were discussed and referred by the Hon'ble Supreme Court in the aforesaid case, were in the cases of:-

(i) Judgment rendered by the Delhi High Court in the case

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

of Rajni Anand V. Cosmic Structures Limited, C.P. No.152 of 2016, decided on 27.09.2018 reported in [2018] 150 SCL 530 (Delhi).

(ii) Jaipur Metals & Electricals Employees Organization V. Jaipur Metals & Electricals Ltd. reported in (2019) 4 SCC 227.

(iii) Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd. reported in 2019 (18) SCC 549.

(iv) M/s. Kaledonia Jute & Fibres Pvt. Ltd. V. M/s. Axis Nirman & Industries Ltd. reported in AIR 2021 SC 32.

(v) Swiss Ribbons Pvt. Ltd. and Anr. V. Union of India & others reported in (2019) 4 SCC 17.

(vi) Innoventive Industries Ltd. V. ICICI Bank reported in (2018) 1 SCC 407.

(vii) Arcelor Mittal (India) (P) Ltd. V. Satish Kumar Gupta reported in (2019) 2 SCC 1.

5. After referring to the aforesaid judgments, the Hon'ble Supreme Court laid down the legal position as given in paragraph-22 quoted above.

6. We have sought the assistance of learned counsels Mr. A.S. Vakil, Mr. B.H. Bhagat, Mr. Abhijit Joshi, Mr. Nandish Chudgar and Mr. Devang D. Trivedi appearing in the present case before us for the

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

respective parties on the issue whether the provisions of the Sick Industries Companies Act (Special Provisions) Repeal Act, 2003, as amended by Section 252 of the Insolvency and Bankruptcy Code, 2016 with effect from 01.12.2016 - the date notified for the purpose of Section 4(b) of the Sick Industries Companies Act (Special Provisions) Repeal Act, 2003, can be transferred to the NCLT, at this stage.

7. We have also summoned the record of the winding-up petition, namely, Company Petition No.139 of 1985, M/s. Shethna Enterprises V. M/s. Ganpati Pulp and Paper Mills Ltd., in which a winding-up order was passed by a learned Single Judge as Company Court on 12.03.1986. The Office may place the record of the said winding-up petition before us on the next date.

8. Mr. Abhijit Joshi, learned counsel appearing for the Official Liquidator, also submits that a Status Report was filed in this Letters Patent Appeal in March 2011, along with the copy of the winding-up order dated 12.03.1986. He submitted that the Secured Creditor, Gujarat State Financial Corporation, had sold the Assets of the said defaulting Company, Respondent No.6 - M/s. Ganpathi Pulp and Paper Mills Ltd., under Section 29 of the State Financial Corporation Act, 1951, without the permission of the Company Court.

9. However, this submission was disputed Mr. Devang Trivedi, learned counsel appearing for Respondent No.1 - Gujarat State Financial Corporation and Mr. Nandish Chudgar, learned counsel appearing for Respondent No.5 - M/s. Shree Industries Ltd., the Auction Purchaser under section 29 of the State Financial Corporation Act, 1951. He further

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

submits that the Official Liquidator has not yet invited claims of the other creditors, etc. with respect to the wound-up Company, Respondent No.6 - M/s. Ganpathi Pulp and Paper Mills Ltd.

10. In these circumstances, we direct the Official Liquidator of the said Company - M/s. Ganpathi Pulp and Paper Mills Ltd. to produce before us the latest Status Report of the winding-up proceedings of the said Company, along with the copies of the relevant orders passed by this Court, before the next date of hearing and apprise the Court about the stage of the winding-up proceedings, so that an appropriate decision in accordance with paragraph-22 of the judgment of the Hon'ble Supreme Court in the case of Action Ispat and Power Pvt. Ltd. (supra) can be taken by this Court while disposing of this Letters Patent Appeal either by remitting the matter to the NCLT or otherwise.

11. It was also submitted before us by Mr. B.H. Bhagat, learned counsel appearing for Respondent No.9 - M/s. ASREC (India) Ltd., i.e. the Assignee of another Secured Creditor - Bank of Baroda, Respondent No.3 before us, that while the dues of other Secured Creditors or Banks, GIIC, etc. were settled by Respondent No.5 - Shree Industries Ltd. after the said Auction Purchaser also defaulted in repayment of the loan of Respondent No.1 - Gujarat State Financial Corporation, as the purchase price under section 29 of the State Financial Corporation Act, 1951 was converted into a Term Loan to Respondent No.5 - M/s. Shree Industries Ltd., but the dues of the Assignee of Bank of Baroda, Respondent No.3 and some other Secured Creditors were not settled. He also referred to some proceedings before the Delhi High Court and the purported Settlement between said Bank of Baroda / Assignee - M/s. ASREC

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

(India) Ltd. with M/s. Shree Industries Ltd. by referring to the order of the Division Bench of the Delhi High Court and submitted that even that Settlement did not fructify and M/s. Shree Industries Ltd. did not pay up according to the said Settlement to the Assignee of Bank of Baroda - Respondent No.9. He submitted that the present Letters Patent Appeal is pending in this Court for the last more than ten years and because of the interim order of Status Quo granted by the Coordinate Bench of this Court, firstly, on 22.10.2010 and again on 13.12.2010 headed by the Hon'ble Chief Justice at that relevant time and in view of that interim order, which is continuing even now, the said Assignee of Respondent No. 3 - ASREC (India) Ltd., which steps into the shoes of the Secured Creditor - Bank of Baroda, is unable to even negotiate or settle with the said Respondent No.5 - Shree Industries Ltd. and in the interest of justice, the said blanket Status Quo order deserves to be modified and at least these parties should be directed to undertake the negotiations for Settlement of the dispute of the said Secured Creditor, the Assignee of Bank of Baroda - M/s. ASREC (India) Ltd. and such other Secured Creditors who are waiting for recovery even through such Settlement and have not yet given their 'No Dues Certificate' in favour of Respondent No.5 - Shree Industries Ltd.

12. This submission was opposed, initially, by Mr. A.S. Vakil, learned counsel for the Appellants, who are the Guarantors for the loan of Borrower - Ganpati Pulp and Paper Mills Ltd., now in liquidation. He submits that since this interim order, in the form of Status Quo order, is continuing since last about ten years, let the present Letters Patent Appeal be finally decided and till then, the interim order be continued.

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

13. After hearing the learned counsels and taking a holistic view of the matter, we are of the considered opinion that since the final decision of the matter, either at the hands of this Court or at the hands of the NCLT, even if the proceedings were to be transferred to the NCLT, may take considerably long period from now, no useful purpose will be served by continuing with the aforesaid blanket Status Quo order, which is continuing in this Letters Patent Appeal for the last more than ten years, which, in turn, has not permitted any further negotiations or development or even use of the Assets, as it was informed to us that the production activity of the Respondent No.5 - Shree Industries Ltd. is also stopped for the last 8 - 10 years. This, prima facie, means that while the productive Assets of the Company are going junk because of disuse and no effective resolution of the matter is happening, either by payment to the Secured Creditors and other Creditors nor the Secured Creditors are allowed to take further recovery measures, subject to the rights and contentions of the various parties involved in the matter, therefore, as an interim measure at this stage, we feel it appropriate to modify the aforesaid blanket Status Quo order in the following manner:-

(I) We direct the Respondent No.5 - Shree Industries Ltd. and the Respondent No.9 - ASREC (India) Ltd., the Assignee of Bank of Baroda and other Secured Creditors, who have not yet been finally settled and paid off by the Respondent No.5 - Shree Industries Ltd., to undertake the negotiation process for Settlement of the dues of such Secured Creditors and try to settle the dues of such Secured Creditors in the interregnum period. If the Settlement can be arrived at, let such Settlement Document be produced before this Court. If, however, such Settlement is not possible, at

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

least the details of the efforts made for that purpose and the reasons for not arriving at the Settlement, may also be produced in the form of Status Report by the concerned parties before this Court. To that extent, the earlier Status Quo orders dated 22.10.2010 and 13.12.2010 passed by the Coordinate Bench of this Court in the present Letters Patent Appeal No.2480 of 2010 shall stand modified.

(II) The Settlement, if any, arrived at now under the aforesaid modification of the Status Quo order shall remain subject to the final decision of this Letters Patent Appeal and such further orders as this Court deems appropriate to be passed later on.

14. The learned counsel for the Official Liquidator has already been directed to produce before us the latest Status Report of the winding-up proceedings taken with regard to the Company in liquidation, namely, M/s. Ganpati Pulp and Paper Mills Ltd.

15. The record of the winding-up petition being Company Petition No.139 of 1985, M/s. Shethna Enterprises V. Ganpati Pulp and Paper Mills Ltd. and other related Interim Applications, if any, filed in that winding-up petition, along with the Court orders passed therein, may also be placed before us along with the record of this Letters Patent Appeal on the next date of hearing.

16. All the learned counsels appearing in the present case before us are requested to file their Brief Note of Submissions, along with the copies of the relevant Court orders and the judgments / citations, which they want

C/LPA/2480/2010 ORDER DT. 17/02/2021 LALITABEN GOVINDBHAI PATEL AND OTHERS V. GUJARAT STATE FINANCIAL CORPORATION AND ORS.

to rely by the next date of hearing, in hard-copies, after exchanging copies with the other learned opposite counsels appearing in this matter. Learned counsels Mr. HM Bhagat and Mr. Nandish Chudgar are further directed to place on record the copies of the relevant documents and the Court orders with regard to the earlier compromise efforts made by Respondent No. 5 - Shree Industries Ltd. and the Secured Creditors like Respondent No.9 and Bank of Baroda and other Secured Creditors, if any, before this Court or any other Court as well.

17. The Original Title Deeds of the properties in question, which are said to be in possession of Respondent No.1 - Gujarat State Financial Corporation, will not be handed over to any party except with the leave of this Court.

18. The matter shall be treated as Part-Heard. Put up on 15.03.2021, as prayed.

( DR. VINEET KOTHARI, J )

( GITA GOPI, J )

PRAVIN KARUNAN