Official Liquidator isn’t bound to bring notice of outstanding electricity dues to auction purchaser

By | August 1, 2016

HIGH COURT OF GUJARAT

Torrent Power Ltd.

v.

Official Liquidator of Ahmedabad Manufacturing & Calic

R.M. CHHAYA, J.

CO. APPLICATION NOS. 5 OF 2011 & 146 OF 2015
CO. PETITION NOS. 47 OF 1992 & 157 OF 1995

JULY  4, 2016

K.B. Pujara, Advocate for the Applicant. Ms. Amee Yajnik, Hemang M. Shah, D.S. Vasavada and Vimal M. Patel, Advocates for the Respondent.

JUDGMENT

 

1. As both these applications relate to identical issue and similar prayers, the same were heard together and are hereby disposed of by common judgment and order.

2. Company Application No.5 of 2011 is filed by the applicant viz. Torrent Power Ltd., which has prayed for the following relief(s):—

“(a) To direct the opponent herein do bring to the notice of and to inform the bidders/intending purchasers/auction purchasers of the property of the Ahmedabad Manufacturing and Calilo Printing Mills Company Limited (in liquidation) of the outstanding dues of Torrent Power Ltd. And the GERC Notification dated 20.08.2010 and that Torrent Power Ltd. Would not provide electric connection at the same premises unless and until the said outstanding dues, together with interest thereon at the rate of 15 % per annum as on date of payment, are fully paid to Torrent Power Ltd.;
(b) to direct the opponent herein to incorporate in all the advertisements for sale of assets of any Company in liquidation that may be issued by the opponent herein, the specific term and condition that if there are any outstanding dues of Torrent Power Ltd. From the concerned Company then Torrent Power Ltd. Would not provide electric connection at the same premises unless and until such outstanding dues, together with interest thereon at the rate of 15% per annum as on date of payment, are fully paid to Torrent Power Ltd.
(c) to issue ad-interim directions in terms of paragraph 6(a) and 6(b) above, pending the hearing and final disposal of this application
(d) ** ** **”

3. Whereas Company Application No.146 of 2015 is filed by the applicant viz. Paschim Gujarat Vij Company Ltd., wherein it has prayed as under:—

“A. Your Lordships be pleased to direct the Official Liquidator to lodge the claim of the applicant Company to the tune of Rs.38,76,27,154/- crores.
B. Your Lordships be pleased to direct the respondent Official Liquidator to inform all the probable bidders about the pending dues of the applicant company.
C ** ** **”

4. Heard Mr. K.B. Pujara, learned counsel for the applicant in Company Application No.5 of 2011 and Mr. Rituraj M. Meena, learned counsel for the applicant in Company Application No.146 of 2015, Ms. Amee Yajnik and Mr. J.S. Yadav, learned counsel for the Official Liquidator and Mr. Hemang Shah, learned counsel for the ARCIL, Mr. D.S. Vasavada, learned counsel for the Union in both the matters and Mr. Vimal Patel, learned counsel for respondent No.11 in Company Application No.5 of 2011. Though served, no one appears for other parties.

5. Learned counsel for the applicant in Company Application No.5 of 2011, contended that the applicant came to know on publication of newspaper that the Company viz. “Ahmedabad Manufacturing and Calico Printing Mills Company Ltd.”, is ordered to be wound up. Pursuant to such publication, the applicant vide communication dated 19.04.2010 informed the Official Liquidator that the applicant had granted electricity connection at the premises, bearing Service No.HT-39 and Service No.HT- 266 and the said electric connections were disconnected on 17.10.1995 on account of non- payment of dues. In para 2 of the said communication, the applicant had informed that intending purchaser/occupier may also note that the applicant-electricity company will not provide electric connection at the same premises unless and until the outstanding dues, together with interest thereon at the rate of 15% per annum as on date of payment, are fully paid to the applicant Company. It was further contended that the Official Liquidator did not give reply to the same.

6. It was further contended that by Notification No.6 of 2010, Gujarat Electricity Regulatory Commission (hereinafter referred to as “G.E.R.C” for short) amended clause 4.1.11. Relying upon clause 2 of Notification No.6/2010 dated 28.02.2010, it was submitted that as per the amended clause 4.1.11, the application for new connection, reconnection, addition or reduction of load, change of name, shifting of service line from any premises shall not be entertained if any dues are payable either from the same service or any other services held in his name anywhere within the jurisdiction of the applicant – electricity Company. It was further submitted that thus, as per amended clause 4.1.11 of G.E.R.C., everything is covered right from new connection to even change of name.

7. It was further contended that the Official Liquidator gave further advertisement in “Times of India” dated 03.11.2010 for sale of the immovable properties of the Company (in liquidation), however, the Official Liquidator did not provide for notice to intending buyer as regards the dues of the applicant Company.

8. Learned counsel for the applicant further submitted that vide further communication dated 04.12.2010, the applicant requested the Official Liquidator to inform the intending purchaser/auction purchaser about the dues of two service connections bearing Service No.HT-39 and Service No.HT-266 and also further informed that the applicant Company will not provide electricity in the same premises unless and until the outstanding dues, together with interest thereon at the rate of 15 % per annum as on date of payment, is not fully paid up to the applicant and as no steps were taken thereafter, present application is filed.

9. Learned counsel for the applicant contended that the prayers prayed for by the applicant in Judge’s Summons are innocuous prayers and in view of the amendment made in supply code, learned counsel for the applicant submitted that, even if, the property is disposed of, new purchaser will have to clear all outstanding dues of the erstwhile owner, then and then only he would be granted new connection.

10. It was further submitted that the Official Liquidator has wrongly relied upon the order of this Court passed in Company Application No.11 of 2008 dated 03.03.2008 as the said order is prior to the amendment made in the supply code and that the same is pending before the Division Bench of this Court being O.J. Appeal No.106 of 2008.

11. Relying upon the judgments of the Apex Court in the case of Special Officer Commerce, North Eastern Electricity Company of Orissa (NESCO) v. Raghunath Paper Mills (P.) Ltd. 2012 (8) SC 1, learned counsel for the applicant contended that. even if it is purchased through auction is also liable to pay the arrears of electricity dues outstanding against erstwhile Company. Similarly, relying upon the judgment of the Apex Court passed in Civil Appeal No.7899 of 2012, more particularly paragraph No.18 to 20 thereof, it was further contended that the Apex Court has upheld the stand of the Electricity Company.

12. Learned counsel for the applicant has further contended that in light of the factual position, the Official Liquidator may incorporate it in the terms and conditions and in the advertisement about legal position and therefore, the prayers prayed for in the application be granted. It was further submitted that such prayer is made only to avoid future litigation and therefore, the present application deserves to be allowed as prayed for.

13. Mr. Rituraj Meena, learned counsel for the applicant in Company Application No.146 of 2015 has adopted the arguments made by Mr. K.B. Pujara, learned counsel for the applicant in Company Application No.5 of 2011. He has relied upon the judgment of the Division Bench of Madras High Court rendered in the case of TCI Distribution Centers Ltd. v. Official Liquidator [2011] 106 SCL 19 (Mag.) and submitted that the present application deserves to be allowed as prayed for.

14. Per contra, Ms. Amee Yajnik and Mr. J.S. Yadav, learned counsel for the Official Liquidator have opposed the applications. Ms. Amee Yajnik, learned counsel for the Official Liquidator submitted that though the prayers appeared to be innocuous in reality they are not. It was contended that under which provisions of the Companies Act, 1956 (hereinafter referred to as “the Act” for short) the applicants are seeking direction against the Official Liquidator and that the applicants have no locus. It was further submitted that the applicants at the most may be preferential creditors and the advertisement, which is published, is given as per the terms and conditions fixed by this Court and therefore, no preferential treatment can be given to the applicants. It was thus contended that the applicants have no locus.

15. Mr. J.S. Yadav, learned counsel for the Official Liquidator has submitted that the present applications are unique applications made for the first time by the creditors and it is not filed as provided under the Act or the Companies (Court) Rules, 1959 (hereinafter referred to as “the Rules” for short) . It was further contended that the prayers prayed for in both applications are completely contrary to the provisions of the Act and the Rules. It is the duty of the Official Liquidator to publish an advertisement inviting different category of claims under Sections 429, 429A and 530 of the Act after obtaining permission as provided under Rule 149 of the Rules. It was further contended that no provisions of the Act or Rules provide that such clarification/mention is required to be made in the advertisement. It was also contended that the amendment made by G.E.R.C. in clause 4.1.11 is not applicable to the Company (in liquidation) and therefore, the judgments cited by learned counsel for the applicants would not be applicable in the present case.

16. Mr. J.S. Yadav, learned counsel for the Official Liquidator further contended that there is no cause of action described or made out by the applicants. In fact, the prayers which are sought for relate to future event of sale of assets of the Company (in liquidation), which is not going to hurt or affect the applicants and that the Official Liquidator is supposed to take care and consider and settle the dues of each and every creditor as per the provisions of the Act and Rules subject to availability of funds in accordance with law. It was also submitted that the Official Liquidator disposes of the assets of the Company (in liquidation) on “as is where is and whatever there is basis”. It was, therefore, contended that the present applications are misconceived and frivolous and not supported by any precedents.

17. Mr. J.S. Yadav, learned counsel for the Official Liquidator submitted that the Company Act is complete code and is not procedure code. No rule prescribes such situation as prayed for by the applicants. It was, therefore, submitted by learned counsel for the Official Liquidator that present applications deserve to be dismissed.

18. Mr. D.S. Vasavada, learned counsel for the Union has also opposed these applications and has contended that the applicants want to override the provisions of the Companies Act. It was submitted that the said Act provides the priority which is to be given while disbursing the amount by the Official Liquidator and the same is provided under Sections 529, 529A and 530 of the Act. It was further submitted that the prayers prayed for in these applications cannot be granted as the same would in fact nullify and frustrate the very scheme of the Act. Mr. Vasavada, has relied upon the judgments of the Apex Court rendered in the cases of CIT v. KTC Tyres (India) Ltd. [2014] 128 SCL 192/50 taxmann.com 232, Employees’ Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Ltd. [2011] 15 taxmann.com 140/110 SCL 520 (SC), andGovernor General in Council v. Shiromani Sugar Mills Ltd. (in Liquidation) AIR (33) 1946 Federal Court 16, it was submitted that thus, the applications are misconceived and the same deserve to be dismissed.

No other or further submissions are made by learned counsel for the respective parties.

19. Upon considering the submissions made by learned counsel for the parties and on perusal of the record of these applications, the applicants – Electricity Companies, who supplied the electricity to their respective customers namely “Ahmedabad Manufacturing and Calico Printing Mills Company Ltd.”, and “Gujarat Hi-tech Industries Ltd.” the Companies, are wound up. It is not the case of either of the applicants that they are secured creditors and field of disposal of the property of the Company (in liquidation) are governed by specific provisions of the Act and the Rules. Section 457(2A) of the Act provides as under:—

(a) The Official Liquidator shall appoint security guards to protect the property of the company taken into his custody and to make out an inventory or the assets in consultation with secured creditors after giving them notice;
(b) appoint, as the case may be, valuer, chartered surveyors or chartered accountant to assess the value of company’s assets within fifteen days after taking into custody of property, assets, referred to in sub- clause (a) and effect or actionable claims subject to such terms and conditions as may be specified by the Tribunal;
(c) give an advertisement, inviting bids for sale of the assets of the company, within fifteen days from the date of receiving valuation report from the valuer, charted surveyors or chartered accountants referred to in clause (b), as the case may be.”

Similarly, Rules 272 and 273 of the Rules provide as under :-

Rule 272 – Sale to be subject to sanction and to confirmation by Court – Unless the Court otherwise orders, no property belonging to company which is being wound-up by the Court shall be sold by the Official Liquidator without the previous sanction of the Court, and every sale shall be subject to confirmation by the Court.

Rule 273 – Procedure at sale – Every sale shall be held by the Official Liquidator, or, if the Judge shall so direct, by an agent or an auctioneer approved by the Court, and subject to such terms and conditions, if any, as may be approved by the Court. All sales shall be made by public auction or by inviting sealed tenders or in such manners as the Judge may direct.

20. Record of the applications clearly indicates that even in the case of Company (in liquidation), this Court had passed an order permitting the Official Liquidator to sale the property of the Company (in liquidation). Record further indicates that one such attempt was made by giving a public notice, wherein it is clearly provided that sale of the property is on “as is where is basis and whatever there is basis”. It is also provided that the purchaser will be liable to pay all local dues and taxes. The Official Liquidator has also produced on record the terms and conditions, which have been finalized by this Court, wherein condition No.10(c) provides as under:—

Condition No.10(c): Shall obtain water, electricity, telephone connection and all other necessary amenities required by them at their cost.”

Similarly Condition Nos.14 and 23 provides as under:—

“Condition No.14: The purchaser shall be liable to pay all statutory dues, if any, due and payable on the properties of the subject company for the period after the date of winding up order. The payment of such dues for pre-liquidation period shall be settled as per the provisions of the Companies Act, 1956. However, dues taxes, cess, if any, applicable on the sale of the assets shall be paid by the purchaser.

Condition No.23 : The Hon’ble High Court has right to impose such other and further terms and conditions as the Hon’ble High Court may deem, fir and proper, as in the circumstances of the case, may arise and said terms and conditions already specified above will be binding on all the parties concerned.”

21. Though at first blush, the prayers prayed for by the applicants appear to be innocuous, the question which arise is that whether such condition is necessary to be provided or not. Upon considering the terms and conditions, which are provided by the Official Liquidator while disposal of the assets of the Company (in liquidation), appropriate conditions are already provided for.

22. For recovery of dues, the applicants have to lodge their claims. It is not the case of the applicants that dues of the applicants would fall within the ambit of Sections 529 and 529A of the Act and at the most, even if any such claim is filed by the applicants, the same would fall under the category of Section 530 of the Act. Therefore, even if any payment is to be made, the same cannot be any contravention to the provisions of the Act.

23. This Court (Coram : Hon’ble Mr. Justice V.M. Pancholi) in Company Application No.193 of 2014, while considering the issue of preferential payment, has observed thus—

“16. Now, it would be appropriate to consider the relevant provisions of the Companies Act, 1956. Clause (a) of sub-section (1) of Section 530 of the Companies Act provides that:

530. Preferential payments.– (1) In a winding up [subject to the provisions of section 529A, there shall be paid] in priority to all other debts – (a) all revenues taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date;

17. Thus, from the aforesaid provisions, it is clear that all revenues taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date and having become due and payable within the twelve months next before that date shall be paid in priority to all other dues in a winding up proceedings subject to provisions of Section 529A of the Act and the same shall be paid in priority to all other dues. Clause (c) of sub-section (8) of Section 530 provides that:

(c) the expression the relevant date means-

(i) in the case of a company ordered to be wound up compulsorily, the date of the appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date; and
(ii) ** ** **

18. Thus, from the aforesaid provisions of law it is clear that the debts due and payable so as to claim priority must be appropriated to the period within 12 months next before the relevant date and their liability for payment must be founded during that period and no other. In other words, it can be said that the State has priority over debts, liability and obligation of which was borne within the time frame of those 12 months and as such due and becoming due and payable within those 12 months next before the relevant date, ascertainable it necessary later, if not already ascertained. The words having become due and payable within 12 months next before the relevant date need to be understood to mean putting a restriction or cordoning of the amount for which priority is claimable and not in respect of each and every debt on account of taxes, rates and cesses etc. which may be outstanding at that time and payable. Thus, as and when the claim is lodged by the Sales Tax Department before the Official Liquidator, he has to first ascertain as to whether the liability of sales tax belongs to and is founded within the period of 12 months next before the date of order of winding up i.e. in the present case 22.12.1992. At this stage, it is relevant to note that the Sales Tax Department has already lodged the claim before the Official Liquidator in the year 1995. The Official Liquidator would consider the same in accordance with the provisions of Section 530 of the Companies Act.

19. Thus, merely because this Court has observed in condition No.7 of the terms and conditions that the purchaser is required to pay all the taxes in relation to the property levied/leviable by the State Government or any local authority in relation to the company in liquidation, it does not mean that preferential payment from the sale proceeds be made to any Government Authority or any local authority over the other secured creditors, workers, etc. of the company in liquidation in contravention to the provisions of Section 530 of the Companies Act, 1956. Moreover, as observed above, as per the condition No.7 of the aforesaid order, the purchaser is required to pay all the taxes in relation to property and sales-tax is not the taxes in relation to the property.”

24. As far as the terms and conditions are concerned as quoted hereinabove, the purchaser is clearly informed that he would be liable for all the dues. As far as present applicants are concerned, it is an admitted position that the electricity Companies under the provisions of the regulations and/or supply code as applicable have already disconnected the electricity connections of the Company (in liquidation) in the instant case and therefore, there is no question of reconnection. As regards the contention raised by learned counsel for the applicants that as per amended supply code, and more particularly Regulation 4.1.11 would apply to all intending purchaser, it is to be noted that the provisions of the Indian Electricity Act, 2003 and Supply Code has no bearing on the proceedings under the Companies Act and the same would apply to purchaser as and when he becomes consumer of the electricity Company. So on both the counts, the applicants are not entitled to say that in the advertisement itself, it is required to be mentioned that some amount is due and payable towards electricity charges to the applicants – electricity Companies.

25. The Apex Court in the case of Special Officer, Commerce, North Eastern Electricity Company of Orrisa (NESCO) (supra), has interpreted Regulation 13(10) of the Orissa Electricity Regulatory Commissions Distribution (conditions of supply) Code, 2004 and has observed thus:—

“20.In light of the above discussion, specific factual details regarding the position of respondent No.1 which purchased the said premises under court auction sale from the Official Liquidator on “as is where is basis” and “whatever there is” basis and in the light of the regulations quoted above, particularly, sub-clause 10(b) of regulation 13, we hold that the request was not for the transfer from the previous owner to the purchaser, on the other hand, it was a request for a fresh connection for the Unit of respondent No.1 herein. We are in entire agreement with the decision arrived by learned Single Judge as affirmed by the Division Bench of the High Court.”

26. In the instant case also, as observed hereinabove, the electricity Companies have already disconnected the earlier connections and therefore, it would not be case of reconnection, but a fresh connection. However, at the same time, it is not at all necessary to provide in the advertisement that some amount is due and payable towards electricity charges from erstwhile consumer. In fact, the applicants have already disconnected the electricity supply for non-payment of charges of erstwhile customer. The Apex Court in the case of Swastik Industries v. Maharashtra State Electricity Board, has held that the electricity Company has power to discontinue the supply of electricity and/or cut the supply if the consumer is neglecting to pay the electricity charges. Similarly, in the case of TCI Distribution Centers Ltd., (supra), the Division Bench of the Madras High Court has held that the Official Liquidator is required to disclose all material facts within his knowledge and should not suppress any information regarding nature, description, extent of the property, non-availability of the title deeds, interest of the Company (in liquidation) in the properties and also any encumbrances if any, with respect the same would not apply to the facts of the present case. What has been considered by the Madras High Court is totally different issue relating to Notification Survey Number, which were put to save. It is not the case of the applicants that they have any other additional or special right as far as the amount of due is concerned and therefore, the applicants have no right to insist that there has to be inclusion of their debts as part of the advertisement for sale proclamation.

27. Learned counsel for the applicants have not been able to point out that there is no any other provisions of the Act and/or the Rules. As observed hereinabove, the same has to be in accordance with the provisions of the Act and the Rules and the terms and conditions which are prescribed by the Official Liquidator are well prescribed by the order of this Court, which is as per provisions of the Act, more particularly Section 457(2)(f) of the Act read with Rules 272 and 273 of the Rules. Therefore, the judgments relied upon by learned counsel for the applicants, have no application in the instant case and amendment in the supply code would not take the case of the applicants any further. The powers of Official Liquidator are well prescribed under the provisions of the Act and the Rules and therefore, the applicants cannot be permitted to achieve the status which they do not possess as per provisions of the Act keeping in mind the provisions of Sections 529, 529A and 530 of the Act and the applicants cannot be permitted to override the provisions of the Act as rightly contended by learned counsel for the respondent and as held by the Apex Court in the case of Commissioner of Income Tax (supra), the applicants cannot be permitted to bypass the priority which is prescribed under the Act and cannot be paid the dues of workers or secured creditors.

28. An identical view is also taken by the Division Bench of this Court in case of State Bank of India v. Official Liquidator of Commercial Ahmedabad Mills Co. Over and above the properties which are prescribed under Sections 429, 429A and 530 of the Act, as held by the Apex Court in the case of Employees’ Provident Fund Commissioner (supra), provident fund dues in respect of the employees’ contribution shall be deemed to be first charge of the assets of the Company (in liquidation). The case of the applicants cannot be equated with such dues of provident fund. In absence of any provision, it cannot be said that the terms and conditions as prescribed by the Official Liquidator as approved by this Court in any way erroneous. Even assuming that the applicants have priority as prescribed under Section 530 of the Act, in opinion of this Court, such cannot be incorporated in any advertisement for sale of the assets of any Company (in liquidation) as prayed for by the applicants.

29. In opinion of this Court, on the contrary the applicants are required to lodge their claim before the Official Liquidator in accordance with the provisions of the Act and Rules. As far as applicability of Supply Code, more particularly clause 4.1.11 of the Regulation is concerned, the same would be a case between intending purchaser and the electricity Company and therefore, the Official Liquidator is not duty bound to bring to the notice of the purchaser and/or auction purchaser of the Company (in liquidation) that there is outstanding dues of the electricity Company along with interest thereon at the rate of 15 % per annum and that unless and until such dues are paid, no connection would be provided by a special mention in the sale proclamation as prayed for by the applicants. The same is therefore, de hors the provisions of the Act and the Rules and misconceived in law and facts.

30. While giving an advertisement, list of secured, unsecured, or preferential is not to be provided or made part of the public advertisement especially when other clauses as enumerated hereinabove and a specific clause that sale is subject to the conditions “as is where is and whatever there is basis”.

31. In light of the aforesaid, both the applications fail and are hereby dismissed. The applicant of Company Application No.5 of 2011 is not entitled for any of the reliefs/claims as prayed for in the Judge’s Summons. Similarly, the applicant of Company Application No.145 of 2015 also is not entitled for any of the reliefs as claimed for.

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