Official Liquidator of Commercial Ahmedabad Mills Ltd. v. Manager, State Bank of India
2015-03-03
HARSHA DEVANI
body2015
DigiLaw.ai
Judgment Harsha Devani, J. 1. The official liquidator has taken out this judges' summons praying for a declaration that the alleged possession of the land of the company in liquidation situated at Survey No. 39 and 41, T.P. Scheme No. 14, F.P. No. 24 of Dariyapur, Kazipur, Ahmedabad, admeasuring approximately 27.71 square metres taken by the Government of Gujarat without obtaining leave and permission of the company court under section 446 of the Companies Act, 1956 (hereinafter referred to as "the Act") is illegal and void. The official liquidator further seeks a declaration that the alleged continuation of proceedings under the Urban Land (Ceiling and Regulation) Act, 1976 (hereinafter referred to as "the ULC Act") without obtaining leave and permission of the company court under section 446 of the Companies Act, 1956, is illegal and void and that the alleged declaration of land as surplus is illegal and void. A further declaration has been sought that by the alleged disturbing of custody of this court, the Government of Gujarat has committed contempt of court and may not be heard till it purges the contempt. In the affidavit-in-support of the judges' summons, it has been stated that by an order dated October 11, 1989, passed by this court in Company Petition No. 117 of 1989, M/s. The Commercial Ahmedabad Mills Ltd. (hereinafter referred to as "the company") has been ordered to be wound up by this court and the official liquidator attached to this court has been appointed as its liquidator with all usual powers under the provisions of the Act and accordingly, the official liquidator has taken possession of the available assets of the company situated at Ahmedabad. It has been stated that after the winding up, the official liquidator took charge of the assets and properties of the company on December 4, 1989 and also took physical possession of movable and immovable assets and properties of the company. In terms of the order dated April 2, 1997, passed by this court in Company Application No. 208 of 1997, a sale committee was constituted under the chairmanship of the official liquidator with representatives of the secured creditors as members of the said committee for disposal of the assets and properties of the company (in liquidation). On December 1, 1998, valuation of the movable and immovable assets and properties of the company came to be carried out.
On December 1, 1998, valuation of the movable and immovable assets and properties of the company came to be carried out. Valuation of the land of the company was once again carried out on September 5, 2005. In terms of the order dated February 3, 1999, passed in Official Liquidator Report No. 7 of 1999, the movable assets of the company, viz., plant, machinery and other movables excluding the building structure, records and the land of the company was confirmed in favour of the successful bidder. By an order dated February 5, 2003, made in Official Liquidator Report No. 47 of 2002, the sale of building super structure except land, time-keeper office, record and compound wall was confirmed in favour of the successful bidder. Various sale committee meetings took place for deciding the issue of sale of land, and on June 15, 2005, it was decided to have a fresh valuation of the land. Thereafter, on January 16, 2006, the official liquidator issued an advertisement in the newspaper for and on behalf of the sale committee inviting offers for purchase of the land of the company. The official liquidator held auction of the land on January 30, 2006 and pursuant thereto he filed a report before this court for confirmation or otherwise of sale of the land of the company in favour of the successful bidder. At this stage, the bidder pointed out that proceedings under the ULC Act have been carried out in respect of the land of the company. In view thereof, the official liquidator joined the State Government as a party in the proceedings. In response thereto, the Deputy Collector, Urban Land Ceiling, Ahmedabad filed an affidavit dated June 28, 2006, placing on record a copy of the order dated April 6, 1991, passed by the Competent Authority and Deputy Collector, Urban Land Ceiling, Ahmedabad (hereinafter referred to as "the Competent Authority") whereupon, the official liquidator has come to know about such an order having been passed. In the said affidavit-in-reply it has further been stated that land of the company (in liquidation) to the extent of 26,721 square metres was declared excess vacant under the provisions of the ULC Act and possession thereof had been taken over on May 15, 1992, after issuing the notifications under section 10(1) and (3) of the ULC Act.
In the said affidavit-in-reply it has further been stated that land of the company (in liquidation) to the extent of 26,721 square metres was declared excess vacant under the provisions of the ULC Act and possession thereof had been taken over on May 15, 1992, after issuing the notifications under section 10(1) and (3) of the ULC Act. Challenging the action of the State Government in initiating proceedings under the ULC Act and taking over possession of the above referred land without obtaining the sanction of the company court under section 446 of the Act, as being illegal and contrary to law, the official liquidator has filed the present application denying that physical possession of the land has been taken over by the State Government. 2. In response to the averments made in the affidavit in support of the judges' summons, Mr. Dineshkumar D. Kapadia, Competent Authority and Deputy Collector, Urban Land Ceiling, Ahmedabad has filed an affidavit-in-reply stating that by an order dated March 25, 1991, passed by the Competent Authority under the ULC Act, land admeasuring 26,721 square metres out of the land in question, namely, land situated at Survey No. 39 and 41, T.P. Scheme No. 14, F.P. No. 24 of Dariyapur, Kazipur, Ahmedabad, admeasuring 27,721 square metres, has been declared as excess vacant. It is pointed out that the Commercial Ahmedabad Mills Co. Ltd., has filed Form 1 under section 6(1) of the ULC Act on August 31, 1976. Subsequently, draft statement was published under sub-section (3) of section 8 of the ULC Act on December 31, 1982. Thereafter, a notice came to be issued under sub-section (4) of section 8 of the ULC Act on February 14, 1983, calling upon the company to produce the documentary evidence as well as for giving an opportunity of hearing and for verification of Form 1. The company, through its director, time and again sought adjournments and at certain dates, produced the documentary evidence with a view to see that the authorities may not declare the land admeasuring 26,721 square metres as excess vacant land.
The company, through its director, time and again sought adjournments and at certain dates, produced the documentary evidence with a view to see that the authorities may not declare the land admeasuring 26,721 square metres as excess vacant land. It is further stated that on June 1, 1990, a notice under sub-section (4) of section 8 of the ULC Act was issued and was personally served at the address mentioned in Form 1 through the maintenance Surveyor, at which point of time, the concerned authority came to know that the mill had been closed down and the official liquidator had been appointed as liquidator of the company, and accordingly, after obtaining the address of the official liquidator, a notice under sub-section (4) of section 8 of the ULC Act came to be served upon the official liquidator on March 7, 1991. However, the official liquidator did not respond to the said notice and hence, on March 25, 1991, an order came to be passed under sub-section (4) of section 8 of the ULC Act declaring 26,721 square metres of land as excess vacant land. It is stated that subsequently, final statement under section 9 of the ULC Act was served upon the official liquidator on April 20, 1991. That on June 19, 1991, the notification under sub-section (1) of section 10 of the ULC Act was published and subsequently, the notification under sub-section (3) of section 10of the ULC Act also came to be published. Despite the fact that the order under sub-section (4) of section 8 of the ULC Act as well as final statement under section 9 of the ULC Act had been served upon the official liquidator, at no point of time, the official liquidator raised any objection qua the said proceedings. It was only after the notice under sub-section (5) of section 10 of the ULC Act which was issued on October 3, 1991, came to be served upon the official liquidator, that the official liquidator addressed a letter dated November 14, 1991, in a cyclostyle format.
It was only after the notice under sub-section (5) of section 10 of the ULC Act which was issued on October 3, 1991, came to be served upon the official liquidator, that the official liquidator addressed a letter dated November 14, 1991, in a cyclostyle format. That in the month of January, 1991, the ULC authorities informed the Circle Inspector of Dariyapur, Kazipur to make necessary entry in the revenue record that the ULC proceedings had been initiated in respect of the land in question and in furtherance thereto, by a letter dated February 19, 1992, the official liquidator was informed that the possession of the subject land would be taken over on February 29, 1992. That on receipt of the letter dated February 19, 1992, the official liquidator informed the ULC authorities vide its letter dated February 26, 1992, that the provisions of section 446 of the Act are required to be followed by the said authority. It is stated that the ULC authorities had ex parte taken over the possession of the land in question on May 15, 1992 and filed a report dated May 15, 1992, which was also sent to the Revenue Department. Subsequently, mutation Entry No. 17829 came to be made in the record of rights on May 12, 1999, entering the name of the State Government in respect of the land in question. 3. Along with the affidavit-in-reply, a copy of the order under sub-section (4) of section 8 of the ULC Act, copies of notifications issued under sub-section (1) of section 10 and sub-section (3) of section 10 of the ULC Act, a copy of the notice dated October 3, 1991, issued under sub-section (5) of section 10 of the ULC Act and a copy of the panchnama dated May 15, 1992, recording the taking over of possession on the part of the State Government have also been annexed. An extract of the village Form 6 showing the mutation entry whereby the name of the State Government has been entered in the record of rights has also been produced on the record. In response to the averments made in the affidavit-in-reply filed by the Deputy Collector, the official liquidator has filed a rejoinder dated October 7, 2013. 4. Mr.
An extract of the village Form 6 showing the mutation entry whereby the name of the State Government has been entered in the record of rights has also been produced on the record. In response to the averments made in the affidavit-in-reply filed by the Deputy Collector, the official liquidator has filed a rejoinder dated October 7, 2013. 4. Mr. R.M. Desai, the learned advocate for the official liquidator invited the attention of the court to the provisions of section 446 of the Companies Act, 1956, to submit that the same envisages that when a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. It was submitted that in the facts of the present case, though the proceedings had been initiated prior to the winding up order, the same were pending on the date when the winding up order came to be made and hence, it was incumbent upon the competent authority to first obtain the leave of the court before proceeding further with the proceedings under the ULC Act. It was submitted that since no permission under section 446 of the Act has been obtained, on that ground alone, the proceedings stand vitiated and are required to be set aside. In support of his submissions, learned counsel placed reliance upon the decision of the Supreme Court in the case of S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. v. V.M. Deshpande, ITO, [1972] 42 Comp Cas 168 (SC) : [1972] 83 ITR 685 (SC) : AIR 1972 SC 878 , for the proposition that the expression "other legal proceeding" in sub-section (1) and the expression "legal proceeding" in sub-section (2) of section 446 of the Companies Act convey the same sense and the proceedings in both sub-sections must be such as can appropriately be dealt with by the winding up court. The court held that the Income-tax Act is a complete code and it is particularly so with respect to the assessment and reassessment of income-tax.
The court held that the Income-tax Act is a complete code and it is particularly so with respect to the assessment and reassessment of income-tax. The fact that after the amount of tax payable by an assessee has been determined or quantified, its realisation from a company in liquidation is governed by the Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under section 446 of the Act. 5. Reliance was placed upon the decision of this court in the case of State Bank of India v. Pro. O.L., of Volvo Steel Ltd. (Stanrose Steel Ltd.) [2004] 122 Comp Car 440 (Guj), wherein the court observed that the permission to initiate proceedings under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, could not be denied merely because an official liquidator was appointed by virtue of an order passed by the High Court. The court observed that the scheme of the Securitisation Act has an overriding effect in view of section 36 of the said Act and that the applicant-banks, being secured creditors having complied with the provisions of section 13(9) of the 2002 Act, were empowered to initiate such proceedings. However, since the matter was pending before the company court prior permission of that court was required to be taken under section 446 of the Companies Act, 1956, and there was no reason for the court not to grant permission. It was submitted that similarly, the authorities under the ULC Act are also required to obtain prior permission of the court prior to proceeding further with the proceedings under the ULC Act. 6. The decision of the Supreme Court in the case of Kanhaiyalal v. Dr.
It was submitted that similarly, the authorities under the ULC Act are also required to obtain prior permission of the court prior to proceeding further with the proceedings under the ULC Act. 6. The decision of the Supreme Court in the case of Kanhaiyalal v. Dr. D.R. Banaji, AIR 1958 SC 725 , was cited for the proposition that it is settled law that proceedings taken in respect of a property which is in the possession and management of a receiver appointed by the court under Order 40, rule 1 of the Code of Civil Procedure, without the leave of that court, are illegal in the sense that the party proceeding against the property without the leave of the court concerned, is liable to be committed for contempt of the court, and that the proceedings so held, do not affect the interest in the hands of the receiver who holds the property for the benefit of the party who, ultimately, may be adjudged by the court to be entitled to the same. The general rule that property in custodia legis through its duly appointed receiver is exempt from judicial process except to the extent that the leave of that court has been obtained, is based on a very sound reason of public policy, namely, that there should be no conflict of jurisdiction between different courts. If a court has exercised its power to appoint a receiver of a certain property, it has done so with a view to preserving the property for the benefit of the rightful owner as judicially determined. If other courts or Tribunals of co-ordinate or exclusive jurisdiction were to permit proceedings to go on independently of the court which has placed the custody of the property in the hands of the receiver, there was a likelihood of confusion in the administration of justice and a possible conflict of jurisdiction. It was submitted that in the facts of the present case, the official liquidator pursuant to the orders passed by this court, had taken over possession of the assets of the company (in liquidation). Therefore, the State authorities could not have proceeded against the property without the leave of the court and hence, are liable to be committed for contempt of the court. 7.
Therefore, the State authorities could not have proceeded against the property without the leave of the court and hence, are liable to be committed for contempt of the court. 7. Next, it was submitted that on facts, the possession of the subject land has never been taken over by the authorities under the ULC Act. To buttress the said contention reference was made to the panchnama produced along with the affidavit of the Deputy Collector, to submit that the same does not bear the signature of the panchas and therefore, the alleged possession has not been taken over in accordance with law. Therefore, the possession taken under such an ex parte panchnama is illegal. Reliance was placed upon the decision of a Division Bench of this court in the case of Raghbir Singh Sehrawat v. State of Haryana [2012] 1 GLH 339 (Guj), for the proposition that under section 16 of the Land Acquisition Act, 1894, actual possession of the land has to be taken and paper possession is not sufficient to vest the land in the State. It was submitted that in the facts of the present case also, actual possession has never been taken over and hence, the property has not vested in the State Government and that the liquidator with the permission of the court, can deal with the property in question. 8. The decision of the Supreme Court in the case of Mukarram Ali Khan v. State of U.P., AIR 2007 SCW 6286, was also relied upon, wherein the court had held that when the undisputed position was that the State has not taken the possession over the surplus land, the proceedings have to be treated to have abated under section 4 of the Urban Land (Ceiling and Regulation) Repeal Act, 1999 (hereinafter referred to as "the Repeal Act"). It was submitted that in the facts of the present case, since the possession of the land declared excess vacant by the competent authority was not taken over prior to the coming into force of the Repeal Act, the proceedings under the ULC Act stand abated. It was, accordingly, submitted that the relief prayed for in the application deserves to be granted. 9. Mr. Anip Gandhi, the learned advocate for respondent No. 4, secured creditor and Mr. B.G. Jani, the learned advocate for respondent No. 2 adopted the submissions advanced by Mr. R.M. Desai, the learned advocate.
It was, accordingly, submitted that the relief prayed for in the application deserves to be granted. 9. Mr. Anip Gandhi, the learned advocate for respondent No. 4, secured creditor and Mr. B.G. Jani, the learned advocate for respondent No. 2 adopted the submissions advanced by Mr. R.M. Desai, the learned advocate. 10. Mr. D.S. Vasavada, the learned advocate appearing on behalf of respondent No. 6 placed reliance upon the decision of the Federal Court in the case of Governor-General in Council v. Shiromani Sugar Mills Ltd. (in liquidation), [1946] 16 Comp Cas 71 (FC) : [1946] 14 ITR 248 (FC) : AIR 1946 FC 16, wherein the court had held that the expression "or other legal proceeding" in section 171 need not, and therefore should not, be confined to original proceedings in a court of first instance, analogous to a suit initiated by means of a petition similar to a plaint. Section 171 must be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act. The court held that no narrow construction should be placed upon the words "or other legal proceeding" in section 171. The words can and should be held to cover distress and execution proceedings in the ordinary courts. Such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company. It was submitted that the above decision would be squarely applicable to the facts of the present case and accordingly, the proceedings under the ULC Act would be other legal proceedings within the meaning of the said expression as envisaged under section 446 of the Act and hence, it was incumbent upon the competent authority to obtain prior permission of the company court before proceeding further with the proceedings under the ULC Act and therefore, all the proceedings carried out by the competent authority under the ULC Act stand vitiated. 11. In support of his submission, learned counsel placed reliance upon the decision of the Supreme Court in the case of J.K. (Bombay) P. Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co.
11. In support of his submission, learned counsel placed reliance upon the decision of the Supreme Court in the case of J.K. (Bombay) P. Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., [1970] 40 Comp Cas 689 (SC) : AIR 1970 SC 1041 , for the proposition that the effect of a winding up order is that except for certain preferential payments provided in the Act, the property of the company is to be applied in satisfaction of its liabilities pari passu. Pari passu distribution is to be made in satisfaction of the liabilities as they exist at the commencement of the winding up. On a winding up order, the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realise them and to pay from out of the sale proceeds its creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed, for, doing so would be contrary to the creditors' right to have the proceeds of the assets distributed among them pari passu. It was submitted that when the winding up order came to be passed, the proceedings under the ULC Act were incomplete and hence, no new rights could have been created after the winding up order as doing so would be contrary to the creditors' rights to have the proceeds of the assets distributed among them pari passu. 12. Mr. Vasavada further invited the attention of the court to the decision of the Division Bench of this court passed in the present case, wherein the previous order passed by the company court finally deciding the present application was subject matter of challenge. It was pointed out that the Division Bench had come to the prima facie conclusion that the provisions of section 42 of the ULC Act cannot claim primacy over the provisions of section 529A of the Act considering the fact that the ULC Act was brought on statute in 1976, while section 529A of the Act is a subsequent legislation brought on statute book in 1985. It was submitted that, therefore, section 529A of the Act would have an overriding effect over section 42 of the ULC Act and hence, the provisions of the ULC.
It was submitted that, therefore, section 529A of the Act would have an overriding effect over section 42 of the ULC Act and hence, the provisions of the ULC. Act cannot be given a primacy over the provisions of section 529A of the Companies Act. 13. Reliance was also placed upon the decision of the Supreme Court in Oil and Natural Gas Corporation Ltd. v. Official Liquidator of Ambica Mills Co. Ltd., [2014] 184 Comp Cas 405 (SC) : [2014] 5 Scale 190, wherein an injunction had been issued to ensure that the company in liquidation does not further encumber or create charges in favour of third parties over the assets of the company in liquidation. The court held that such interim injunction did not amount to creating a charge in favour of ONGC and that the claims of ONGC will have to be worked out in accordance with sections 529 and 529A of the Companies Act. 14. Vehemently opposing the petition, Ms. Maithili Mehta, learned Assistant Government Pleader submitted that in the present case, the proceedings under the ULC Act came to be initiated prior to the winding up order being made by this court. Therefore, no permission as envisaged under section 446 of the Companies Act was required to be taken. Reliance was placed upon the decision of the Supreme Court in the case of Harihar Nath v. State Bank of India, [2006] 131 Comp Cas 119 (SC) : [2006] 4 SCC 457, wherein the court had held that it is by now well-settled that when any winding up order is passed during the pendency of a suit against a company and if the suit is continued without obtaining leave in spite of the bar contained in section 446(1), a decree passed is only voidable at the instance of the liquidator and not null and void. It was, accordingly, submitted that at best, in the facts of the present case, it may be open for the liquidator to avoid the order. However, merely because the permission had not been obtained under section 446(1) of the Act, it cannot be said that the order as well as all proceedings pursuant thereto are null and void. 15.
It was, accordingly, submitted that at best, in the facts of the present case, it may be open for the liquidator to avoid the order. However, merely because the permission had not been obtained under section 446(1) of the Act, it cannot be said that the order as well as all proceedings pursuant thereto are null and void. 15. Reliance was placed upon the decision of the Supreme Court in the case of Allahabad Bank v. Canara Bank, [2000] 101 Comp Cas 64 (SC) : [2000] 4 SCC 406, wherein the court has held that the jurisdiction of the Tribunal in regard to adjudication is exclusive. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, requires the Tribunal alone to decide applications for recovery of debts due to banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under section 19(22) to the Recovery Officer for recovery of the debt specified in the certificate. It was submitted that in the present case, it is the competent authority under the ULC Act who has exclusive jurisdiction to take a decision under section 8(4) of the ULC Act as regards the extent of excess vacant land held by a person. Under the circumstances, the proceedings under the ULC Act not being legal proceedings as contemplated under section 446 of the Act, there was no necessity for obtaining the permission of the court for continuation of the proceedings. 16. In respect of the provisions of section 529A of the Act, with reference to which, the Division Bench had remanded the matter, it was submitted that the provisions of section 42 of the ULC Act which say that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force, would prevail and would override the provisions of section 529A of the Act. It was submitted that the ULC Act operates in a special arena and hence, the provision of section 529A of the Act would not be applicable to the facts of the present case. 17. Reliance was also placed upon the decision of the Supreme Court in the case of State of West Bengal v. Sri Pronab Kr.
It was submitted that the ULC Act operates in a special arena and hence, the provision of section 529A of the Act would not be applicable to the facts of the present case. 17. Reliance was also placed upon the decision of the Supreme Court in the case of State of West Bengal v. Sri Pronab Kr. Sur, [2003] 114 Comp Cas 664 (SC) : [2003] 9 SCC 490, to submit that if initiation of proceedings under section 8 of the ULC Act is valid, the permission for resorting to the provisions of section 10(1) of the ULC Act and subsequent provisions should not be required. It was submitted that if section 446 of the Act is not a bar till the stage of section 9 of the ULC Act, codified proceedings cannot be bifurcated because the very purpose of the Act becomes redundant. 18. Before adverting to the merits of the rival submissions, it may be noted that by a judgment and order dated March 28, 2008 (O.L. of Commercial Ahmedabad Mills Ltd. v. Manager, State Bank of India, [2009] 147 Comp Cas 243 (Guj)), this court (Coram: K.A. Puj J.) had disposed of this application by holding that the official liquidator was not entitled to the relief or declaration as prayed for in the application in relation to the subject land. Against the said judgment and order, the State Bank of India had preferred an appeal before a Division Bench of this court. By a judgment and order dated September 26, 2008 (State Bank of India v. Official Liquidator of Commercial Ahmedabad Mills Co. reported in [2009] 149 Comp Cas 705 (Guj) : [2009] 1 GLR 420), the Division Bench set aside the judgment and order passed by the company court and restored the matter to file for de novo adjudication and recording of fresh decision in accordance with law. The Division Bench while remanding the matter, had observed as follows (pages 711 to 713 of 149 Comp Cas): "Section 529A of the Act opens with a non obstante clause and stipulates that notwithstanding anything contained in any other provisions of the Act or any other law for the time being in force in the winding up of a company, workers' dues and debts due to secured creditors, shall rank pari passu and shall be paid in priority to all other debts.
Therefore, the said provision has an overriding effect not only qua the provisions of the Act but also any other law for the time being in force. Section 529A of the Act was inserted on the statute book, vide Act No. 35 of 1985 with effect from May 24, 1985 and, therefore, would override all other provisions of the Act as well as any other law in force on the said date. Therefore, prima facie, provisions of section 42 of the ULC Act cannot claim primacy over provisions of section 529A of the Act considering the fact that the ULC Act was brought on statue in 1976 while section 529A of the Act is a subsequent legislation brought on statute book in 1985. Possibly this aspect of the matter, may not have been brought to the notice of the company court. However, the jurisdiction vested in a company court is a special jurisdiction and considering the true scope and object of the provisions of section 529A of the Act, official liquidator functions under the directions of the company court and acts for and on behalf of the company court, primarily to ensure that the interest of workmen of a company (in liquidation) do not go unrepresented and are taken care of. This salutary feature of functioning of company court could not have been overlooked by the company court while determining the issue in question. In fact, when section 529A of the Act was proposed to be introduced vide the Companies (Amendment) Bill, 1985, the statement of object and reasons provided as under (see [1985] 58 Comp Cas (St.) 181, 186): 'Another announcement made by the Finance Minister in his Budget speech relates to the decision of the Government to introduce necessary legislation so that the legitimate dues of workers rank pari passu with secured creditors in the event of closure of the company and above even the dues to the Government. The resources of the companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate even of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product of their labour and effort.
It is accordingly proposed to amend sections 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely, section 529A (vide clauses 4, 5 and 6 of the Bill).' In the case of Textile Labour Association v. Official Liquidator, [2004] 120 Comp Cas 505 (SC) : [2004] 3 GLH 416 (SC), the apex court was called upon to decide the true scope of the provisions of section 529A of the Act in the light of the priority claimed by Oil and Natural Gas Commission on the basis of an order made by the apex court in favour of the ONGC. The Supreme Court has laid down as under, (page 509): '8. The effect of sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen's dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under section 529A to the extent of the workmen dues. The purpose of section 529A is to ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the company and the assets of the company would remain charged for the payment of the workers' dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except section 529A. This section overrides preferential claims under section 530 also. Under section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues. 9. Therefore, the law is clear on the matter as held in UCO Bank v. Official Liquidator, High Court, Bombay, [1994] 81 Comp Cas 780 (SC) : [1994] 5 SCC 1, that section 529A will override all other claims of other creditors even where a decree has been passed by a court. 10. Therefore, claims, if any, of ONGC will have to be worked out in accordance with sections 529 and 529A of the Companies Act as well.
10. Therefore, claims, if any, of ONGC will have to be worked out in accordance with sections 529 and 529A of the Companies Act as well. The contention advanced on behalf of ONGC by Shri Raju Ramachandran that if a mandamus had been issued, it will prevail over any law is not tenable and is rejected.' Thus, what is the effect of the provisions of section 529A of the Act have to be necessarily considered by the company court in every matter where the properties/assets of the company (in liquidation) are claimed by a person other than the secured creditors and workmen. The company court could not have decided the matter as if the issue was only a dispute between the land owner and the competent authority under the ULC Act. It is equally well-settled in law that though procedural compliance is required to be established in justification of an action, yet at the same time, mere form over substance cannot be preferred. In the light of the view that the court has adopted, it has not been found necessary to enumerate and deal with the various judgments cited by both the sides on merits of the controversy as to the applicability or otherwise of the provisions of the ULC Act. It will be open to the parties to raise all contentions that may be available on facts and in law before the company court." 19. In the light of the above order passed by the Division Bench, it is apparent that the matter has been remanded for de novo adjudication and more particularly, to consider the effect of the provisions of section 529A of the Act. 20. The short dispute that arises for determination in the present case is as to whether the authorities under the ULC Act could have continued with the proceedings under the said Act and have taken over the possession of the land declared excess vacant by virtue of the order passed under sub-section (4) of section 8 of the ULC Act. 21.
The short dispute that arises for determination in the present case is as to whether the authorities under the ULC Act could have continued with the proceedings under the said Act and have taken over the possession of the land declared excess vacant by virtue of the order passed under sub-section (4) of section 8 of the ULC Act. 21. Section 446 of the Companies Act provides that when a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. Therefore, in the light of the provisions of section 446 of the Act, it is not permissible to commence any suit or other legal proceeding or to proceed with any suit or legal proceeding, against the company, if pending at the date of the winding up order, except by leave of the company court. In the present case, the winding up order came to be made on October 11, 1989 and the official liquidator took charge on December 4, 1989. The affidavit-in-reply filed by the competent authority reveals that the company (in liquidation) had filed Form 1 under section 6(1) of the ULC Act on August 31, 1976 and the draft statement had been published under section 8(3) of the ULC Act on December 31, 1982, that is, prior to the date of the winding up order. Thereafter, a notice came to be issued on February 14, 1983, under section 8(4) of the ULC Act pursuant to which, the director of the company had sought adjournments and produced some documentary evidence. Subsequently, further notices came to be issued under section 8(4) of the ULC Act, and on June 1, 1990, the notice came to be returned with an endorsement that the mill in question had been closed. Thereafter, on July 24, 1990, another notice under section 8(4) of the ULC Act came to be issued and was served at the address mentioned in Form 1 through the Maintenance Surveyor. At that point of time, the authority under the ULC Act came to know that the mill was closed and the official liquidator had been appointed as the liquidator of the company.
At that point of time, the authority under the ULC Act came to know that the mill was closed and the official liquidator had been appointed as the liquidator of the company. Thereafter, the notice under section 8(4) of the ULC Act came to be served upon the official liquidator on March 7, 1991. Since the official liquidator did not respond pursuant to the said notice, an order under section 8(4)of the ULC Act came to be made on March 25, 1991, declaring 26,721 square metres of F.P. No. 24 held by the company (in liquidation) to be excess vacant land. Subsequently, final statement under section 9 of the ULC Act came to be served upon the official liquidator and notifications under section 10(1) and (3) of the ULC Act vesting the property in the State Government came to be issued. The notice under section 10(5) of the ULC Act for taking over possession of the land declared excess vacant came to be issued on October 3, 1991 and was served upon the official liquidator whereupon, the official liquidator addressed a letter dated November 14, 1991, to the authority under the ULC Act informing him that the entire assets and properties of the company, including the land in question, was in the custody of the High Court of Gujarat under section 446(2) of the Act. It was further stated in the said letter that the proceedings under the provisions of the ULC Act against the company appear to have been initiated without seeking the leave of the High Court of Gujarat as required under section 446 of the Act and accordingly, requested the ULC authorities not to take possession of the land as proposed, without complying with the requirements of section 446 of the Act. Undeterred by the above referred communication issued by the official liquidator, the ULC authorities proceeded to take over the possession of the land declared excess vacant, ex parte, and filed a report in respect thereto. It appears that pursuant thereto, mutation Entry No. 17829 came to be made on May 12, 1999, entering the name of the State Government as owner of the lands declared excess vacant. 22.
It appears that pursuant thereto, mutation Entry No. 17829 came to be made on May 12, 1999, entering the name of the State Government as owner of the lands declared excess vacant. 22. In the aforesaid backdrop, the question that arises for consideration is as to whether it was permissible for the authorities under the ULC Act to continue with the proceedings under the said Act and to take over the possession of the lands declared excess vacant. In this regard, it may be germane to refer to the decision of the Supreme Court in the case of S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. v. V.M. Deshpande, ITO, [1972] 42 Comp Cas 168 (SC) : [1972] 83 ITR 685 (SC) : AIR 1972 SC 878 on which reliance has been placed by learned counsel for the official liquidator, wherein, the question before the Supreme Court was as to whether it was necessary for the Income-tax Officer to obtain leave of the liquidation court when he wants to reassess the company for escaped income in respect of the past years. The court observed that the object of sub-section (4) of section 446 of the Act appears to be to empower "the court as in exercise of insolvency jurisdiction to decide all claims made by or against any company and other questions whatsoever so that winding up proceedings might be expedited". The court took note of the provisions of Chapter XIV of the Income-tax Act and was of the view that while holding the assessment proceedings, the Income-tax Officer does not perform the functions of a court as contemplated by section 446(2) of the Act. The court further observed that looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of section 446 read as a whole, it appears that the expression "other legal proceeding" in sub-section (1) and the expression "legal proceeding" in sub-section (2) of section 446 of the Act convey the same sense and the proceedings in both sub-sections must be such as can appropriately be dealt with by the winding up court. The court was of the opinion that the Income-tax Act is a complete code and it is particularly so with respect to the assessment and re-assessment of income-tax.
The court was of the opinion that the Income-tax Act is a complete code and it is particularly so with respect to the assessment and re-assessment of income-tax. The court observed that the fact that after the amount of tax payable by an assessee has been determined or quantified, its realisation from a company in liquidation is governed by the Act because the income tax payable also being a debt has to rank pari passu with other debts due from the company, does not mean that the assessment proceeding for computing the amount of tax must be held to be such other legal proceeding as can only be started or continued with the leave of the liquidation court under section 446 of the Act. The court was of the opinion that the liquidation court cannot perform the functions of the Income-tax Officer while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the court. The court observed that the orders made by the Income-tax Officer in the course of assessment or reassessment proceedings are subject to appeal to the higher hierarchy under the Income-tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then, there are provisions for revision by the Commissioner of Income-tax. It would lead to anomalous consequences if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The court was of the view that the language of section 446 must be so construed as to eliminate such startling consequences as investing the winding up court with the powers of an Income-tax Officer conferred on him by the Income-tax Act, because in the view of the court, the Legislature could not have intended such a result. 23.
The court was of the view that the language of section 446 must be so construed as to eliminate such startling consequences as investing the winding up court with the powers of an Income-tax Officer conferred on him by the Income-tax Act, because in the view of the court, the Legislature could not have intended such a result. 23. Reference may also be made to the decision of a Full Bench of the Delhi High Court in the case of Life Insurance Corporation of India v. Asia Udyog P. Ltd., [1984] 55 Comp Cas 187 (Delhi) [FB], wherein the question before the court was whether before initiating proceedings under sections 4 and 7 of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, the Life Insurance Corporation is required under law to seek leave of the winding up court under section 446 of the Companies Act, 1956? The court after referring to various decisions on the question, held thus (page 202): "It is no doubt true that in view of these decisions it is possible that a part of the proceedings may be outside the purview of section 446 of the Companies Act like the assessment proceedings under the I.T. Act, but still proceedings for recovery of tax would fall within section 446 of the Companies Act. At first blush it may seem that this dichotomy shows an unsatisfactory state of affairs and such an interpretation should be avoided. Now it is true that if the interpretation inevitably leads to such an oddity it will be no reason not to give full effect to the statute if that is its plain meaning. But, as it is, we do not find that there is any anomaly in the situation. The reason is that the Legislature intended that the assets of the company in liquidation should be dealt with at one place by the company judge, who would, on an overall view of the matter, be in the best position to distribute the funds of the companies equitably so that there is no unseemly scramble of the various creditors to realise their dues from the company.
For this purpose, in cases like the proceedings under the I.T. Act and some other analogous Acts, the proceedings for determination of the rights and liabilities of the companies and the other persons may have to be determined initially by authorities which have been specially created under the specific statute; this is because the proceedings are such which are not normally appropriate for determination by ordinary courts. It is for this reason that such like proceedings for example income-tax, sales tax, excise, etc., may in the first instance have to be decided by the authorities under the special Acts. As the said matters cannot be determined in the first instance by the winding up court, it is self evident that there is no need to obtain prior leave to proceed before the said authorities. However, when the time comes for realisation of dues from the company in liquidation the court dealing with the winding up comes into the picture and prior leave will have to be obtained for starting proceedings for recovery. The test, therefore, according to us is whether the proceedings are such which can normally and appropriately be the subject matter of decision of ordinary courts. If they are not, leave need not be obtained excepting of course, when recovery is to be made against the funds of the company. However, in matters in which proceeding even though before a different forum than the ordinary courts, are contemplated like under the Act of 1971 or even under the Rent Control Act, these proceedings, which are for recovery of possession or for recovery of damages, are normally and appropriately such which can be determined by the winding up courts. It is evident that but for the creation of a separate forum the present proceedings are of such a nature which would ordinarily be dealt with by the ordinary courts of law. In such a case leave will have to be obtained even to initiate proceedings against the company. We are, therefore, of the view that in the present case the proceedings before the Estate Officer under the Act of 1971 are such as can appropriately be proceeded with before the ordinary courts, and hence leave to initiate the proceedings has to be obtained from the winding up court.
We are, therefore, of the view that in the present case the proceedings before the Estate Officer under the Act of 1971 are such as can appropriately be proceeded with before the ordinary courts, and hence leave to initiate the proceedings has to be obtained from the winding up court. Similar would be the situation in case the proceedings are sought to be initiated before the Rent Controller under the Rent Control legislation." 24. Thus, in the above decision, the Supreme Court has held that the test regarding the applicability of the provisions of section 446 of the Companies Act is as to whether the proceedings are such which can normally and appropriately be the subject matter of decision of ordinary courts. If they are not, leave need not be obtained excepting of course, when recovery is to be made against the funds of the company. However, in matters in which proceedings even though before a different forum than the ordinary courts, are contemplated like under the Act of 1971 or even under the Rent Control Act, these proceedings, which are for recovery of possession or for recovery of damages, are normally and appropriately such which can be determined by the winding up courts. The court observed that but for the creation of a separate forum, the proceedings under the Act of 1971 are of such a nature which would ordinarily be dealt with by the ordinary courts of law. In such a case, leave will have to be obtained even to initiate proceedings against the company. The court was of the view that the proceedings before the Estate Officer under the Act of 1971 are such as can appropriately be proceeded with before the ordinary courts, and hence, leave to initiate the proceedings has to be obtained from the winding up court. 25. The facts of the present case have to be considered in the light of the principles propounded in the above decisions. The question that therefore arises for consideration is as to whether the proceedings under the ULC Act are such as can be normally and appropriately dealt with by the ordinary courts of law. 26.
25. The facts of the present case have to be considered in the light of the principles propounded in the above decisions. The question that therefore arises for consideration is as to whether the proceedings under the ULC Act are such as can be normally and appropriately dealt with by the ordinary courts of law. 26. The Urban Land (Ceiling and Regulation) Act, 1976, is an Act to provide for imposition of a ceiling on vacant land in urban agglomerations, for the acquisition of such land in excess of the ceiling limit, to regulate the construction of buildings on such land and for matters connected therewith, with a view to preventing the concentration of urban land in the hands of a few persons and speculation and profiteering therein and with a view to bringing about an equitable distribution of land in urban agglomerations to subserve the common good. Under the provisions of the said Act, any person, holding vacant land in excess of the ceiling limit at the commencement of the Act, is required to file a statement under section 6 of the Act. On the basis of the statement filed by such person under section 6 of the Act, the competent authority would prepare a draft statement in respect of the person who has filed the statement under section 6, setting out the particulars with regard to the name and address of the person, particulars of all vacant lands and of any other land on which there is a building, whether or not with a dwelling unit therein, held by such person; particulars of the vacant land within the ceiling limit which he desires to retain; particulars of the right, title or interest of the person in such vacant land and such other particulars as may be prescribed. The draft statement is required to be served upon the person concerned in the manner prescribed.
The draft statement is required to be served upon the person concerned in the manner prescribed. Under sub-section (4) of section 8 of the Act, the competent authority is required to consider any objection received, within the period specified in the notice referred to in sub-section (3) or within such further period as may be specified by the competent authority for any good and sufficient reason, from the person whom a copy of the draft statement has been served under that sub-section and the competent authority, after giving the objector a reasonable opportunity of being heard, is required to pass such orders as it deems fit. After disposal of the objections, if any, received under sub-section (4) of section 8, the competent authority is required to make the necessary alterations in the draft statement in accordance with the orders passed on such objections and determine the vacant land held by the person concerned in excess of the ceiling limit and cause a copy of the draft statement as so altered to be served in the manner referred to in sub-section (3) of section 8 on the person concerned, etc. After service of the statement under section 9 on the person concerned, the competent authority is required to cause a notification giving the particulars of the vacant land held by such person in excess of the ceiling limit and stating that such vacant land is to be acquired by the concerned State Government; and the claims of all persons interested in such vacant land may be made by them personally or by their agents giving particulars of the nature of their interests in such land, to be published for the information of the general public in the Official Gazette of the State concerned and in such other manner as may be prescribed.
Under sub-section (3) of section10, after the publication of the notification under sub-section (1) thereof, the competent authority may, by notification published in the Official Gazette of the State Government concerned, declare that the excess vacant land referred to in the notification published under sub-section (1) shall, with effect from such date as may be specified in the declaration, be deemed to have been acquired by the State Government and upon the publication of such declaration, such land shall be deemed to have vested absolutely in the State Government free from all encumbrances with effect from the date so specified. Sub-section (5) of section 10 provides for issuance of notice to the person in possession of it to surrender or deliver possession thereof to the State Government or to any person duly authorised by the State Government in this behalf. Sub-section (6) of section 10 provides for taking over possession of the vacant land on behalf of the State Government if any person refuses or fails to comply with an order made under sub-section (5) of section 10 of the said Act. 27. Therefore, the proceedings under the ULC Act are in two parts. The first part is comprised of the proceedings from the stage of filing of statement under section 6 of the ULC Act till issuance of final statement under section 9thereof determining the extent of excess vacant land held by the declarant. The second part is comprised of the proceedings under section 10 of the ULC Act, whereby notification is issued under section 10(1) giving particulars of the land declared excess vacant and stating that such land is to be acquired by the State Government and calling for claims of all interested persons. Thereafter notification is issued under section 10(3) of the ULC Act vesting the land declared excess vacant in the State Government whereafter a notice is issued under section 10(5) thereof for taking over possession of such land and ultimately, if the person does not hand over the possession pursuant to such notice, ultimately the possession is taken over under section 10(6) thereof. Thereafter payment of amount for vacant land acquired is made by following the procedure under section 11 of the ULC Act. Therefore, the proceedings under the first and second part as referred to hereinabove stand on a different footing. 28.
Thereafter payment of amount for vacant land acquired is made by following the procedure under section 11 of the ULC Act. Therefore, the proceedings under the first and second part as referred to hereinabove stand on a different footing. 28. In so far as the proceedings under section 8 of the ULC Act are concerned, in the opinion of this court, the same would not fall within the ambit of the expression "any other legal proceedings" as contemplated under section 446(1) and (2) of the Companies Act, inasmuch as, the proceedings are not of a nature which can normally and appropriately be subject matter of the decision of ordinary courts. The competent authority under the provisions of the ULC Act would be required to take into consideration various factors and take a decision as to what is the extent of excess vacant land to be held by a person. In the opinion of this court, Urban Land Ceiling Act is a complete Code with respect to computation of excess vacant land and the proceedings thereafter. However, in the case of a company in liquidation, after the excess vacant land held by the land owner has been determined by the competent authority, the taking over of possession of the land will be governed by the provisions of the Companies Act since the lands of such company are in the custody of the company court. However, merely because taking over of possession of the land declared excess vacant will be governed by the provisions of the Companies Act cannot be construed to mean that the proceedings for computing the excess vacant land must be held to be "other legal proceedings" as can only be commenced or continued only with the leave of the company court under section 446 of the Act. In the opinion of this court, the company court cannot perform the functions of the competent court while computing the excess vacant land held by the land holders under the ULC Act even if the holder be a company which is being wound up by the court. The orders made by the competent authority under section 8(4) of the ULC Act are subject to appeal in the hierarchy under the ULC Act. There are also provisions for revision by the State Government.
The orders made by the competent authority under section 8(4) of the ULC Act are subject to appeal in the hierarchy under the ULC Act. There are also provisions for revision by the State Government. It would, therefore, lead to an anomalous consequence if the winding up court were to be empowered to transfer the ULC proceedings to itself to compute the excess vacant land held by the company. Under the circumstances, the contention that it was not permissible for the ULC authorities to continue with the proceedings under the ULC Act cannot be accepted to the extent that the same relates to the proceedings under the ULC Act till the stage of issuance of the final statement under section 9 of that Act. In the opinion of this court the proceedings under the ULC Act not being "other legal proceeding" as contemplated under section 446 of the Companies Act, it is permissible for the competent authority to commence and continue with such proceedings till the stage of issuance of the final statement under section 9 of the ULC Act without obtaining the permission of the company court under section 446 of the Act. 29. However, as noted hereinabove, in so far as proceeding further after the stage of issuance of final statement under section 9 of the ULC Act, namely, vesting the land declared excess vacant land in the State Government and taking over possession of the same is concerned, since the land of the company in liquidation is in the custody of the company court, it is not permissible for the authorities under the ULC Act to proceed further without the permission of the court. The Supreme Court in the case of S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. v. V.M. Deshpande, ITO, [1972] 42 Comp Cas 168 (SC) : [1972] 83 ITR 685 (SC) : AIR 1972 SC 878 while holding that proceedings of assessment and reassessment of tax under the Income-tax Act, 1961, are not "other legal proceeding" as contemplated under section 446 of the Act has further held that after the amount of tax payable by an assessee has been determined or quantified, its realisation from a company in liquidation is governed by the Companies Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company.
Drawing an analogy, in case of proceedings under the ULC Act, after the final statement has been issued and the excess vacant land has been determined, the vesting of the land so declared excess vacant and taking over possession of such land would be governed by the Companies Act, inasmuch as, the same being the property in the custody of the company court, can only be distributed in accordance with the provisions of the said Act. However, under no circumstances can the authorities under the ULC Act vest in the State Government the land of the company in liquidation which is in the custody of the court, and take possession of the same. 30. On behalf of the respondent--ULC authorities, the learned Assistant Government Pleader has contended that in view of the provisions of section 42 of the ULC Act, the provisions of the said Act would have an overriding effect over the provisions of the Companies Act, inasmuch as, the Companies Act has been enacted in the year 1956, whereas the ULC Act is a subsequent Act, which has been enacted in the year 1976. Under the circumstances, every action taken under the provisions of the ULC Act would be effective notwithstanding anything inconsistent therewith in any other law, including the Companies Act. It was submitted that the provisions of the ULC Act having an overriding effect over the provisions of the Companies Act, the proceedings undertaken by the authorities under the ULC Act would prevail and accordingly, it was well within the powers of the ULC authorities to take over possession of the subject land. 31. On behalf of the official liquidator, it has been contended that the possession has been taken over without drawing a proper panchnama and hence, the possession which is taken over, is illegal. Placing reliance upon the decision of the Supreme Court in the case of Raghbir Singh Sehrawat v. State of Haryana [2012] 1 GLH 339 (Guj), it was contended that the possession has to be taken over as an actual possession and not paper possession, and that paper possession is not sufficient to vest the land in the State Government.
Placing reliance upon the decision of the Supreme Court in the case of Raghbir Singh Sehrawat v. State of Haryana [2012] 1 GLH 339 (Guj), it was contended that the possession has to be taken over as an actual possession and not paper possession, and that paper possession is not sufficient to vest the land in the State Government. It was submitted that since the possession in the instant case had not been taken over in a proper manner in accordance with the provisions of the ULC Act, in the light of the decision of the Supreme Court in the case of Mukarram Ali Khan v. State of U.P., AIR 2007 SCW 6286, the proceedings would stand abated under section 4 of the ULC Act. 32. In the opinion of this court, the above contention which has been urged before this court would not fall within the purview of the company court, inasmuch as, the said contentions relate to the merit of the proceedings under the ULC Act. Once the proceedings have been taken under the ULC Act, it is only in the proceedings under the said Act that the court can give a finding one way or the other as to the legality or otherwise of the proceedings under the said Act. Therefore, the question as to whether the actual possession or paper possession of the subject land has been taken or as to whether the proceedings would abate in the light of the fact that the possession was not taken over properly prior to the coming into force the Act, etc., are the question which can be adjudicated in the proceedings under the ULC Act and the company court is not competent to deal with such issues. If at all the official liquidator was aggrieved by the order passed by the competent authority, appropriate steps ought to have been taken at the relevant time challenging such order. However, in the proceedings before the company court, the scope is limited to the question of jurisdiction of the ULC authorities to continue with the proceedings under the ULC Act without obtaining the prior permission of the company court under section 446 of the Companies Act. In the opinion of this court, the merits of the action taken by the competent authority cannot be assailed in proceedings under the Companies Act. 33.
In the opinion of this court, the merits of the action taken by the competent authority cannot be assailed in proceedings under the Companies Act. 33. As noticed earlier, the present application had been adjudicated by a judgment and order dated March 28, 2008. The said order was subject matter of challenge before the Division Bench. The Division Bench while remanding the matter for de novo adjudication, has observed that what is the effect of provisions of section 529A of the Act have to be necessarily considered by the company court in every matter where the properties/assets of the company (in liquidation) are claimed by a person other than secured creditors and workmen. The company court could not have decided the matter as if the issue was only a dispute between the land owner and the competent authority under the ULC Act. 34. It may be noted with regret, that despite the above specific terms of remand, on behalf of the official liquidator submissions have been made only on the merits of the action taken by the competent authority under the provisions of the ULC Act without so much as adverting to the provisions of section 529A of the Act. 35. In view of the above order passed by the Division Bench in O.J. Appeal No. 142 of 2008 and allied matters, the question that arises for consideration is as to whether section 42 of the ULC Act would have an overriding effect over section 529A of the Companies Act. 36. It is not necessary to dilate on such issue as the same issue stands already decided by the Division Bench in the above referred decision wherein it has been observed that section 529A of the Act opens with a non obstante clause and stipulates that notwithstanding anything contained in any other provision of the Act or any other law for the time being in force, in the winding up of a company workers' dues and debts due to secured creditors, shall rank pari passu and shall be paid in priority to all other debts. Therefore, the said provision has an overriding effect not only qua the provisions of the Companies Act but also any other law for the time being in force.
Therefore, the said provision has an overriding effect not only qua the provisions of the Companies Act but also any other law for the time being in force. The Division Bench took note of the fact that section 529A of the Act was inserted on the statute book vide Act No. 35 of 1985 with effect from May 24, 1985 and, therefore, would override all other provisions of the Act as well as any other law in force on the said date and observed that therefore, prima facie, the provisions of section 42 of the ULC Act cannot claim primacy over the provisions of section 529A of the Companies Act considering the fact that the ULC Act was brought on statue in 1976 while section 529A of the Act is a subsequent legislation brought on the statute book in 1985. The Division Bench further observed that the jurisdiction vested in a company court is a special jurisdiction and considering the true scope and object of the provisions of section 529A of the Act, the official liquidator functions under the directions of the company court and acts for and on behalf of the company court, primarily to ensure that the interest of workmen of a company (in liquidation) do not go unrepresented and are taken care of. 37. The Supreme Court in the case of Textile Labour Association v. Official Liquidator, [2004] 120 Comp Cas 505 (SC) : [2004] 4 GLR 2993 (SC), was called upon to decide true scope of provisions of section 529A of the Companies Act in the light of the priority claimed by Oil and Natural Gas Commission on the basis of an order made by the apex court in favour of O.N.G.C. The court held thus (page 509): "The effect of sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen's dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under section 529A to the extent of the workmen dues.
If there is no secured creditor then the workmen of the company become unsecured preferential creditors under section 529A to the extent of the workmen dues. The purpose of section 529A is to ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the company and the assets of the company would remain charged for the payment of the workers' dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except section 529A. This section overrides preferential claims under section 530 also. Under section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues. Therefore, the law is clear on the matter as held in UCO Bank v. Official Liquidator, High Court, Bombay, [1994] 81 Comp Cas 780 (SC) : [1994] 5 SCC 1, that section 529A will override all other claims of other creditors even where a decree has been passed by a court. Therefore, claims, if any, of ONGC will have to be worked out in accordance with sections 529 and 529A of the Companies Act as well. The contention advanced on behalf of ONGC by Shri Raju Ramachandran that if a mandamus had been issued, it will prevail over any law is not tenable and is rejected." 38. Thus, the provisions of section 529A of the Companies Act would have an overriding effect over any claim under the ULC Act and consequently, the provisions of section 42 of the ULC Act would not have any primacy over the provisions of section 529A of the Act. Under the circumstances, in so far as vesting the land declared excess vacant under the provisions of the ULC Act in the State Government and taking over the possession of the same is concerned, the ULC authorities would have to stand in the queue and would have to approach the company court for taking over such possession. The assets of the company in liquidation having vested in the company court, the possession of the same could not have been taken over by the authorities under the ULC Act.
The assets of the company in liquidation having vested in the company court, the possession of the same could not have been taken over by the authorities under the ULC Act. While proceedings under the Income-tax Act, 1961, as well as under the ULC Act are not "other legal proceedings" within the meaning of the said expression as contemplated under section 446 of the Companies Act, in so far as realisation of income-tax dues from the company in liquidation is concerned, the same is governed by the provisions of the Companies Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company. However, in so far as the land declared excess vacant under the provisions of the ULC Act is concerned, after issuing final statement under section 9 of the ULC Act such excess vacant land is required to be vested in the State Government and possession thereof is required to be taken over on behalf of the State Government. But, as the custody of the assets of the company in liquidation is with the company court, it would not be possible for the authorities under the ULC Act to take over possession of such excess vacant land under the provisions of the ULC Act. In case where possession of the lands of the company in liquidation is sought to taken over after the winding up proceedings have commenced and such land is in the custody of the company court, the party who takes such action would be liable to be committed for contempt of court as the property of the company being custodia legis, it is not permissible for anyone to take possession thereof without the permission of the company court. 39. At this juncture, reference may be made to the decision of the Supreme Court in the case of Kanhaiyalal v. Dr.
39. At this juncture, reference may be made to the decision of the Supreme Court in the case of Kanhaiyalal v. Dr. D.R. Banaji, AIR 1958 SC 725 wherein, it has been held that proceedings taken in respect of a property which is in the possession and management of a receiver appointed by court under Order 40, rule 1 of the Code of Civil Procedure, without the leave of that court, are illegal in the sense that the party proceeding against the property without the leave of the court concerned, is liable to be committed for contempt of the court, and that the proceedings so held, do not affect the interest in the hands of the receiver who holds the property for the benefit of the party who, ultimately, may be adjudged by the court to be entitled to the same. The above referred decision would be squarely applicable to the facts of the present case, inasmuch as, once the property is in the possession and management of the official liquidator appointed by the court, any proceedings taken in respect of such property without leave of the court, are illegal and the party proceeding against the property without the leave of the court concerned, is liable to be committed for contempt of the court. 40. In Everest Coal Co. P. Ltd. v. State of Bihar, AIR 1977 SC 2304 , the Supreme Court held that any litigative disturbance of the court's possession without its permission amounts to contempt of its authority and the wages of contempt of court in this jurisdiction may well be voidability of the whole proceeding. The above referred decision would be also squarely applicable to the facts of the present case and the disturbance of the court's possession without its permission, would amount to contempt of its authority and the consequence thereof would be that the entire proceedings would be voidable. Since the proceedings taken by the authorities under the ULC Act have been challenged before this court on the ground that the competent authority under the ULC Act has sought to take possession of the land declared excess vacant without prior permission of this court, the proceedings undertaken by the authorities under the ULC Act post the final statement under section 9 of the ULC Act would have to be held to be void as having been undertaken without obtaining the permission of this court.
Once it is held that the possession taken over by the competent authority without the permission of the court is illegal and void, for the reasons that follow the entire proceedings under the ULC Act would stand nullified. 41. It may be pertinent to note that with the coming into force of the ULC (Repeal) Act, the ULC Act, 1976, now stands repealed with effect from April 1, 1999. In view of the provisions of section 3 of the Repeal Act, the provisions of the repeal of the principal Act shall not affect the vesting of any vacant land under sub-section (3) of section 10, possession of which has been taken over by the State Government or any person duly authorised by the State Government in this behalf or by the competent authority. Therefore, if the land declared excess vacant has not been vested in the State Government under sub-section (3) of section 10 of the ULC Act or the land having been vested in the State Government, possession thereof has not been taken over by or on behalf of the State Government prior to the coming into force of the Repeal Act, then the provisions of the Repeal Act would apply and no further proceedings can be taken under the principal Act. In view of section 4 of the Repeal Act, all such pending proceedings shall abate. Reverting to the facts of the present case, all proceedings taken by the ULC authorities subsequent to issuance of final statement under section 9 of the ULC Act are void as having been undertaken without obtaining the permission of this court. Now, the principal Act under which the excess lands are sought to be vested in the State Government stands repealed. It is only if the lands are vested in the State Government under sub-section (3) of section 10 of the ULC Act and possession thereof is taken over prior to the coming into force of the Repeal Act that the action is saved and the repeal of the principal Act does not affect the same.
It is only if the lands are vested in the State Government under sub-section (3) of section 10 of the ULC Act and possession thereof is taken over prior to the coming into force of the Repeal Act that the action is saved and the repeal of the principal Act does not affect the same. However, as in the present case, where the land is not legally vested in the State Government and legal and valid possession has not been taken over on behalf of the State Government, the provisions of the Repeal Act would affect the proceedings undertaken prior thereto and by operation of the provisions of section 4 of the Repeal Act, the same shall stand abated. Therefore, it is not permissible for the authorities under the ULC Act to take any further action under the provisions of the said Act in relation to the land declared excess vacant by the competent authority as the said proceedings have abated. For the foregoing reasons, the application succeeds and is, accordingly, allowed. The action of the respondent authorities of taking over possession of the land of the Commercial Ahmedabad Mills Ltd. (in liquidation), being land admeasuring 26,721 square meters, situated at Survey No. 39 and 41, T.P. Scheme No. 14, F.P. No. 24 of Dariyapur, Kazipur, Ahmedabad, is hereby held to be illegal and invalid, as being contrary to the provisions of sections 446 and 529A of the Companies Act, 1956. Accordingly, all steps taken by the authorities under the ULC Act post issuance of the final statement under section 9 of the ULC Act, are held to be null and void and of no consequence. In view of the coming into force of the Urban Land (Ceiling and Regulation) Repeal Act, 1999, the proceedings under the ULC Act in respect of the land declared excess vacant would stand abated. The application stands disposed of accordingly. Disposed off.