Research › Search › Judgment

Andhra High Court · body

2013 DIGILAW 1169 (AP)

Y. Vijayalakshmi Devi v. Official Liquidator

2013-12-16

L.NARASIMHA REDDY, M.S.K.JAISWAL

body2013
Judgment : (L. Narasimha Reddy, J.) Both the appeals under Clause 15 of the Letters Patent are filed by the same appellant and in relation to the same property. O.S.A.No.52 of 2011 is filed against the order, dated 19.04.2011, passed in C.A.No.849 of 2010 in R.C.C.No.22 of 2000. O.S.A.(SR) No.4677 of 2011 is filed against the order, dated 29.06.2006, passed in C.A.No.561 of 2005 in R.C.C.No.22 of 2000. The facts that gave rise to the filing of these appeals are as under: M/s.Tungabhadra Industries, a Private Limited Company (for short ‘the Company’), held various items of properties including the land in survey Nos.560/2A and 2B of Kurnool Village and District. One M/s. Somalinga Reddy and Sons, a Firm (for short ‘the Firm’), at Bangalore, filed O.S.No.122 of 1996 in the Court of Principal Senior Civil Judge, Kurnool, against the Company, for recovery of certain amount. By that time, the matter pertaining to the Company was pending before the Board for Industrial and Financial Reconstruction (BIFR), as case No.140 of 1990. BIFR framed a scheme on 22.01.1997. Since the Promoters of the Company did not evince interest, BIFR directed the winding up of the Company, and accordingly, R.C.C.No.22 of 2000 came to be instituted before the Company Court i.e. original side of the High Court. O.S.No.122 of 1996 was compromised on 01.02.2001 between the plaintiff therein and the Company. The terms of the compromise were that the Company shall pay a sum of Rs.5,00,000/- within the time stipulated therein, and the property in survey No.567 shall be attached, in the event of the amount not being paid. Alleging that the amount was not paid, the decree-holder i.e. M/s.Somalinga Reddy and Sons filed E.P.No.74 of 2001. Attachment of the land was ordered on 07.03.2001. Even while the E.P. was pending, this Court passed an order, dated 09.07.2001, in R.C.C.No.22 of 2000, directing that the Company be wound up. In the execution proceedings, the attached property was brought to sale on 01.08.2002 and the Firm emerged as the highest bidder. The sale was confirmed by the Executing Court on 22.10.2002 and the sale certificate was issued on 07.11.2002. Possession is said to have been delivered on 13.02.2003. The Firm divided the land into plots and the appellant herein purchased some plots of land from the Firm on 13.03.2006. The sale was confirmed by the Executing Court on 22.10.2002 and the sale certificate was issued on 07.11.2002. Possession is said to have been delivered on 13.02.2003. The Firm divided the land into plots and the appellant herein purchased some plots of land from the Firm on 13.03.2006. On the other side, the Official Liquidator (OL) published a notice on 09.01.2002 proposing to sell the land in survey No.567 and other properties. Ultimately, the OL executed a sale deed on 15.12.2005 in respect of Ac.0.56 cents of land in survey No.560/2A in favour of M/s. Sri Lakshmi Estates. C.A.No.561 of 2005 was filed by the Firm in R.C.C.No.22 of 2000 with a prayer to delete the land of Acs.11.56 cents in survey No.567 from the purview of the proceedings. That was dismissed on 29.06.2006. The appellant has also filed C.A.No.849 of 2010 for the same relief. That C.A. was dismissed on 19.04.2011, in view of the orders passed in C.A.No.561 of 2005. Thus the two appeals came to be filed. Sri A. Satya Prasad, learned Senior Counsel for the appellant, submits that the appellant and her vendor got title to the property, much before it was sold by the OL in the year 2002. He contends that the sale affected by a civil Court on the strength of a validly passed decree cannot be set at naught, on the sole ground that the proceedings before the BIFR were pending. He submits that though a reference was made to this Court on 22.01.1997, by the BIFR, the order of winding up was passed only on 09.07.2001 by which time, not only the suit was decreed, but also attachment was effected in E.P.No.74 of 2001. Placing reliance upon the judgments rendered by the Supreme Court in Bombay Dyeing & MPG.Co.Ltd., v. Bombay Environmental Action Group (2006) 3 SCC 434);KSL & Industries Limited v. Arihant Threads Limited ( (2008) 9 SCC 763 )and Official Liquidator, Uttar Pradesh and Uttarakhand v. Allahabad Bank (2013) 4 SCC 381 ), learned Senior Counsel submits that the decree passed by the trial Court in O.S.No.122 of 1996 remains unaffected by the pendency of the proceedings before the BIFR, or the Company Court, as well as the orders passed therein. Sri M. Anil Kumar, learned Standing Counsel for the OL, submits that Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short ‘the SICA’), by virtue of its non-obstante clause, annuls any transaction in respect of the assets of Company, if that takes place at a time when the matter was under consideration by the BIFR. He contends that the suit filed by the Firm against the Company was purely collusive in nature and it was invented as a device to circumvent the proceedings of winding up. He submits that the Promoters of the Company, who did not evince any interest for implementing the scheme framed by the BIFR, have coolly compromised with the Firm and became instrumental, in procuring a fraudulent decree. He further submits that whatever may have been the circumstances under which compromise decree came to be passed by the trial Court, or the attachment of the property, made by the Executing Court, none of them would have any effect, upon the assets of the company, in view of Section 22 of the SICA, and the orders of winding up, that came to be passed at a later stage. Sri M.Narender Reddy, learned Standing Counsel for the State Bank of India, which is one of the secured creditors, and Sri L.V.S.Nagaraju, learned counsel for respondent No.3, advanced arguments on the same lines. The point that arises for consideration in these appeals is as to, “Whether the sale in favour of the appellant or her vendor in respect of the plot in question is legal and whether the plot of land purchased by the appellant is liable to be deleted from the assets of the Company?” It is a matter of record that the plot of land purchased by the appellant was owned by the Company. However, the vendor of the appellant is the Firm, which incidentally was the plaintiff in O.S.No.122 of 1996. The suit was filed against the Company for recovery of certain amount and that it, in turn, ended in a compromise vide decree, dated 01.02.2001. The compromise provided for payment of Rs.5,00,000/- by the Company, to the Firm. The contingency, in the event of non-payment of amount, was also mentioned, viz., that the plot of land was liable to be attached. The compromise provided for payment of Rs.5,00,000/- by the Company, to the Firm. The contingency, in the event of non-payment of amount, was also mentioned, viz., that the plot of land was liable to be attached. Alleging that the amount was not paid by the Company, the Firm filed E.P.No.74 of 2001 and the property was attached. For execution of sale, the Firm obtained permission under Rule 72 of Order XXI C.P.C., and ultimately emerged as the highest bidder. The Executing Court conveyed the property to the decree-holder, through a sale deed, and it is from the decree-holder, that the appellant purchased the property on 13.03.2006. If these alone are the proceedings that ensued in respect of the property, the appellant can certainly be said to have derived absolute title to the plot in question. That, however, is not the case. Much before O.S.No.122 of 1996 came to be filed, the matter pertaining to the Company was pending before the BIFR, as case No.140 of 1990. Though much progress did not take place in the said proceedings, the BIFR passed an order, framing a scheme, on 22.01.1997 by which time, O.S.No.122 of 1996 was pending. The scheme did not work out and the BIFR passed an order, dated 14.11.2000, directing that the Company be wound up. Even by that time, O.S.No.122 of 1996 was pending. It was about three months later that the compromise decree was obtained in the suit, on 01.02.2001. By that time, the matter was pending before this Court in the form of R.C.C.No.22 of 2000. Winding up order was passed on 09.07.2001. The Parliament intended that once the matter pertaining to a Company is referred to BIFR, all the affairs and transactions in relation thereto must come to a standstill, and accordingly, incorporated Section 22 in the SICA. The provision reads: “Suspension of legal proceedings, contracts, etc. Winding up order was passed on 09.07.2001. The Parliament intended that once the matter pertaining to a Company is referred to BIFR, all the affairs and transactions in relation thereto must come to a standstill, and accordingly, incorporated Section 22 in the SICA. The provision reads: “Suspension of legal proceedings, contracts, etc. – (1) Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a Receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.” From this, it becomes clear that even where judicial proceedings are initiated in respect of the Company, they stand stayed by operation of Section 22 of the SICA. The validity of the proceedings that are initiated during the pendency of the matter before the BIFR is not difficult to imagine. The suit in the instant case was filed when the matter was pending before the BIFR, and compromise decree was obtained at a stage, when the BIFR has already directed that the Company be wound up. Not only the decree passed by the trial Court, but also various developments that have taken place on the basis of such a decree stand completely overshadowed by Section 22 of the SICA. Not only the decree passed by the trial Court, but also various developments that have taken place on the basis of such a decree stand completely overshadowed by Section 22 of the SICA. Learned Senior Counsel made an attempt to sustain the decree and the consequential sale in favour of the appellant by placing reliance upon the judgment of the Supreme Court in KSL & Industries Limited’s case (2 supra).That is the case in which the proceedings under the SICA and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short ‘the RDB Act’), were initiated in respect of the same item of property. After taking into account Section 22 of the SICA, on the one hand, and Section 32 of the RDB Act, on the other hand, which contained non-obstante clauses, Their Lordships of the Supreme Court held that there is no conflict in between the proceedings that may be instituted under the respective enactments. The RDB Act was treated as a special enactment and the SICA is a general one and the principle that a special enactment, that too brought into existence at a later point of time, would prevail over the general one, was applied. The fact that the proceedings that are initiated under the RDB Act cannot be equated to suit was also taken note of. Such is not the case here. What was filed by the Firm i.e. vendor of the appellant, was a simple suit, and it is clearly prohibited under Section 22 of the SICA. Reliance is also placed on the judgment of the Supreme Court in BombayDyeing & MPG.Co.Ltd.,’s case (1 supra). That was a case in which the assets of a sick industrial Company were sold by the Company itself, and not a person, who obtained a decree against such Company. The distinction between a purchase made by a decree-holder himself and the third party, in the auction sale was, no doubt, explained in that case. The record in the present case discloses that the vendor of the appellant was itself a decree-holder and auction purchaser. After that, firm failed in its efforts to get the land excluded from the purview of the winding up proceedings, the appellant has stepped in. The judgment in that case is not of any help to the appellant. The record in the present case discloses that the vendor of the appellant was itself a decree-holder and auction purchaser. After that, firm failed in its efforts to get the land excluded from the purview of the winding up proceedings, the appellant has stepped in. The judgment in that case is not of any help to the appellant. The same is the purport of the judgment in Official Liquidator, Uttar Pradesh and Uttarakhand’s case (3 supra). Learned Senior Counsel has also placed upon the judgment of the Supreme Court in Rafique Bibi v. Sayed Waliuddin ( (2004) 1 SCC 287 ). The circumstances under which a decree can be said to be void or illegal was explained. The effect of operation of Section 22 of the SICA did not fall for consideration. It has already been mentioned that the pendency of the proceedings before the BIFR, would virtually nullify the decree obtained by the vendor of the appellant, by operation of Section 22 of the SICA. When an act of Parliament declares that a particular set of decrees are void, any adjudication in relation thereto is warranted. We do not find any merits in the appeals and they are accordingly dismissed. There shall be no order as to costs. The miscellaneous petitions filed in these appeals shall stand disposed of.