2013 (4) TMI 621 - HC - Companies Law

Court rules in favor of Hindustan Lever Limited, dismissing additional liability claims.

The court dismissed the application, ruling that Hindustan Lever Limited (HLL) had fulfilled its obligations under the approved rehabilitation scheme and ... Application by former Director of SCL seeking directions to HLL to honour all the liabilities and commitments which arose during the period which SCL was under its management and control - first contention of Applicant that HLL has failed to settle various demands/liabilities appearing in the balance sheet - Held that:- Clause 5.1(c) of the Scheme clearly stated that HLL would take over the entire liabilities outstanding at the time of disposal to all the bank/institutions both existing and future, and “not any other additional liabilities (including sales tax, excise duty and dues to the railways) which shall be met out of the sale proceeds of the soap plant”. Only if HLL opted to purchase the soap plant including land, buildings and other facilities at Gajraula used by the soap plant. Clause 5.1(c) of the Scheme also envisaged that if that option was not exercised by HLL, then the above statutory liability was to be paid out of the processing charges paid by HLL to SCL. Further the debt would get enhanced to Rs. 6 crores only if HLL exercised its option to implement Phase-II of the soap manufacturing capacity. The conversion charges to SCL of Rs. 1,900 per tonne of soap packed was to be paid in terms of Clause 6.3(b)(i) after implementation of Phase-II of the project, i.e., after the manufacturing unit was set up. Neither did HLL opt for purchasing the soap plant nor did it proceed with Phase-II of the project. According to HLL it paid SCL conversion charges in excess of Rs. 3 crores per annum. This is not denied by SCL. Thus contention of the Applicant that SCL should have been paid enhanced conversion charges is untenable. HLL owes the Applicant arrears of conversion/processing charges - Held that:- It is seen that in a board meeting of SCL as attended by applicant that the Board was informed that the equipments in fact had got rusted and could not be used unless heavy expenditure was incurred. Quotations had been invited from two-three parties, including HLL for the sale of such equipment. In the meeting applicatant suggested that as the machines were idling it would be better to dispose them of to the highest bidder. As a result the plant and machinery was sold to HLL which was the highest bidder. The Court is unable to discern any malafides on the part of HLL. The allegations by the Applicant in this regard are unsubstantiated. HLL has charged an amount of Rs. 1,52,32,900 from SCL on account of salaries and wages payable to managers and supervisors stated to have been deputed to SCL’s factory for the period 1998-2002 - Held that:- HLL has denied charging Rs. 1,52,32,900 from SCL towards wages of the employees who were sent on deputation to SCL. It is stated that in the handing over docket, HLL had mentioned that Rs. 81,22,072 was payable to it towards balance part payment of salaries and wages of managers and supervisors on full time deputation to SCL factory. In the circumstances, the above plea of the Applicant is rejected. HLL was responsible for clearing the dues of UPSIDC - Held that:- As in a joint meeting held on 12th August 2004 the Applicant informed about a claim of Rs. 209 lakhs against SCL. It is seen that the land cost to the extent of Rs. 63 lakhs has been met by HLL and the responsibility of getting a no dues certificate from UPSIDC was that of SCL. Under the Scheme as approved by the Court, there appears to be no basis for fastening on to HLL the liability owing to UPSIDC. In terms of the Scheme HLL upon implementation of both the phases would have added plant and machinery and due to non-implementation of Phase-II, SCL was deprived of such assets that were to be left by the lessee and the loss on that score has been quantified as Rs. 718.18 lakhs - Held that:- As already noticed, there was no compulsion on HLL to proceed with Phase II of the Scheme. It was an option that HLL did not exercise. This submission of the Applicant is rejected as being misconceived. Tax liabilities - Held that:- HLL is right in contending that there was no obligation on it to pay the said dues. According to the Applicant since 1998-99 the ITD had been assessing SCL under Section 115J/JA of the Income Tax Act, 1961 on the basis of book profits, disregarding the fact that SCL is a sick company. HLL cannot be held liable for being responsible for the said losses. The full discharge of HLL has been certified by IDBI itself. Therefore, this submission of the Applicant is rejected. Issues Involved:1. Liability and commitments of Hindustan Lever Limited (HLL) towards Sivalik Cellulose Limited (SCL).2. Approval and implementation of the rehabilitation scheme under the Industrial Reconstruction Bank of India Act, 1984 (IRBI Act).3. Payment of additional liabilities and statutory dues.4. Allegations of unauthorized removal and sale of critical plant and machinery.5. Payment of salaries and wages to managers and supervisors.6. Responsibility for clearing dues of Uttar Pradesh State Industrial Development Corporation Limited (UPSIDC).7. Implementation of Phase-II of the project and related assets.Issue-wise Detailed Analysis:1. Liability and Commitments of HLL towards SCL:The application by Mr. Inder P. Choudhrie sought directions for HLL to honor liabilities and commitments during the period SCL was under its management. The court noted that HLL had paid processing charges in excess of Rs. 3 crores per annum and had fulfilled its obligations under the approved scheme. The contention that SCL should have been paid enhanced conversion charges was found untenable as HLL did not proceed with Phase-II of the project nor opted to purchase the soap plant.2. Approval and Implementation of the Rehabilitation Scheme:The court approved the rehabilitation scheme proposed by IDBI under the IRBI Act, which included participation of HLL to manufacture toilet soaps. The scheme ensured the reconstruction, revival, and rehabilitation of SCL. The winding-up order was rescinded, and the scheme's terms were directed to be complied with. HLL was given the option to purchase the soap unit at a pre-determined price and was required to pay conversion charges to SCL.3. Payment of Additional Liabilities and Statutory Dues:The scheme contained clauses specifying that HLL would not be responsible for additional liabilities such as sales tax, excise duty, and dues to the railways unless it opted to purchase the soap plant. The court found that HLL had paid Rs. 73,48,991 towards full and final payment under the rehabilitation scheme, and IDBI had issued a 'no dues certificate' to HLL. Consequently, the plea that HLL failed to discharge its liabilities was without basis.4. Allegations of Unauthorized Removal and Sale of Critical Plant and Machinery:The applicant alleged that HLL's nominees sold plant and machinery worth Rs. 1,25,09,574 for Rs. 15,03,148, rendering the rest of the machines useless. The court noted that in a board meeting attended by Mr. Inder P. Choudhrie, it was decided to dispose of the rusted equipment to the highest bidder, which was HLL. The court found no malafides on the part of HLL, and the allegations were unsubstantiated.5. Payment of Salaries and Wages to Managers and Supervisors:The applicant contended that HLL charged Rs. 1,52,32,900 for salaries and wages of managers and supervisors deputed to SCL. HLL denied this and stated that Rs. 81,22,072 was mentioned in the handing over docket as payable for salaries and wages. The court rejected the applicant's plea as HLL had not charged the alleged amount.6. Responsibility for Clearing Dues of UPSIDC:The applicant claimed that HLL was responsible for clearing UPSIDC's dues. The court found that HLL had met the land cost of Rs. 63 lakhs and that the responsibility of obtaining a no dues certificate from UPSIDC was on SCL. There was no basis for holding HLL liable for UPSIDC's dues under the approved scheme.7. Implementation of Phase-II of the Project and Related Assets:The applicant argued that due to non-implementation of Phase-II, SCL was deprived of assets worth Rs. 800 lakhs. The court noted that HLL was not compelled to proceed with Phase-II, and it was an option that HLL did not exercise. Therefore, the submission was rejected as misconceived.Conclusion:The court dismissed the application, finding that HLL had fulfilled its obligations under the approved scheme and was not liable for the additional claims made by the applicant. The allegations against HLL were unsubstantiated, and the responsibilities for additional liabilities and statutory dues were clearly defined in the scheme.