Lapsed rehabilitation authority cannot justify asset sales or share allotments; equitable powers cannot cure illegality.

After the SICA rehabilitation regime had lapsed and the appellate proceedings had abated, GDCL had no subsisting authority to sell JUL and JAIL assets or alter JAIL shareholding; the subsequent allotments were therefore unsustainable. The Court also held that Article 142 cannot be used to validate unauthorised transactions, and legitimate expectation cannot override illegality or create ownership rights where none existed. Rehabilitation proposals from prospective investors were premature without prior asset identification and reliable valuation. The Court directed verification and payment of workmen's and provident fund dues, valuation of remaining assets, and administrative supervision, while treating the winding-up petition as infructuous.

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Issues: (i) Whether GDCL had any subsisting authority or locus to deal with the assets and shareholding of JUL and JAIL after the repeal of SICA and abatement of the pending appellate proceedings; (ii) whether the Court could invoke Article 142 to condone the unauthorised sale of assets and the altered share allotments, or sustain any plea of legitimate expectation in favour of GDCL; (iii) whether the rehabilitation offers submitted by the prospective investors could be accepted without prior valuation and identification of JUL and JAIL assets; and (iv) what consequential directions were required regarding workers' dues, provident fund dues, valuation of assets, and the pending winding-up petition.

Issue (i): Whether GDCL had any subsisting authority or locus to deal with the assets and shareholding of JUL and JAIL after the repeal of SICA and abatement of the pending appellate proceedings?

Analysis: The scheme sanctioned in 1992 had failed, winding up had already been recommended by BIFR, and the appeal before AAIFR abated on repeal of SICA when no reference was filed before NCLT within the statutory period under the Insolvency and Bankruptcy Code, 2016. On that footing, the earlier rehabilitation arrangement lost force and GDCL could not continue to assert control as if it were owner of the undertakings. The Court further held that JAIL had been a subsidiary relevant to the overall asset pool and that the subsequent allotment of shares to GDCL group entities was unsupported by the record and legally unsustainable.

Conclusion: GDCL had no subsisting authority to sell or otherwise deal with JUL and JAIL assets, and the share allotments in JAIL were illegal.

Issue (ii): Whether the Court could invoke Article 142 to condone the unauthorised sale of assets and the altered share allotments, or sustain any plea of legitimate expectation in favour of GDCL?

Analysis: Article 142 cannot be used to sanitise illegality or to validate actions taken without legal authority, especially where the company had continued selling assets while the matter was pending and without taking the Court into confidence. The doctrine of legitimate expectation was found inapplicable because it cannot override illegality or create rights where none existed, and GDCL's long management of the unit did not mature into an enforceable entitlement to ownership or unfettered control.

Conclusion: The plea under Article 142 was rejected and the plea of legitimate expectation failed.

Issue (iii): Whether the rehabilitation offers submitted by the prospective investors could be accepted without prior valuation and identification of JUL and JAIL assets?

Analysis: The Court held that, in the absence of a reliable valuation and complete identification of assets, the proposed schemes could not be evaluated fairly or lawfully. Since the Court was acting as custodia legis over the estate, the first priority was to secure and verify the asset base, ascertain liabilities, and identify the workers and their heirs for payment of dues. In that setting, the offers were premature and could not be accepted.

Conclusion: The rehabilitation proposals of the prospective investors were rejected.

Issue (iv): What consequential directions were required regarding workers' dues, provident fund dues, valuation of assets, and the pending winding-up petition?

Analysis: The Court directed a time-bound verification and payment process for workmen's dues, including provident fund dues, and ordered preparation of inventories and valuation of the remaining assets of JUL and JAIL. The sale of Kanpur Jute Mill and the two JAIL properties was not interfered with, but the sale of scrap from the Sawai Madhopur unit was set aside and the consideration ordered to be refunded with interest. The pending company petition was treated as infructuous in view of the cleared financial position, and an Administrator was appointed to supervise compliance and valuation.

Conclusion: The Court issued final directions for payment verification, valuation, and administration, while leaving the disputed asset sales largely undisturbed except for the scrap sale.

Final Conclusion: The writ petition was disposed of with operative reliefs protecting the workmen, invalidating the unauthorised share allotments, rejecting the investor schemes, and directing a structured process for settlement of dues and valuation of remaining assets.

Ratio Decidendi: A party that retains only management, without subsisting legal title or authority, cannot validly alienate assets or alter shareholding after the underlying rehabilitation regime has lapsed and the statutory appellate proceedings have abated; equitable powers cannot be used to legitimise such illegality.

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