TaxTMI 
TaxTMI 
2014 (1) TMI 1969
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....itio; (D) YOUR LORDSHIPS may be pleased to direct the Respondent No.2 and/or respondent No.3 to re-transfer the shares in favour of Applicants with all rights attached thereto; (E) YOUR LORDSHIPS may be pleased to direct the respondent no.3 to give effect to the transfer of the shares that may be executed by Respondent No.2 and/or respondent No.3 in favour of Applicants as stated above; (F) YOUR LORDSHIPS may be pleased to award the cost of this application; (G) YOUR LORDSHIPS may be pleased to condone the delay of 1484 days if any in making this application; (H) YOUR LORDSHIPS may be pleased to grant such other and further reliefs as may be thought fit in the circumstances;" 2. Subsequently, as per the affidavit filed on behalf of applicant No.1, the applicants sought permission to omit word "review" wherever mentioned in the application and also to delete prayer for condonation of delay. 3. The above-said request was accepted by the Court vide order dated 21.2.2013 after recording no objection of the learned advocate appearing for respondent No.2 without prejudice to its right to raise contention as regards limitation. 4. Lear....
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....be pleased to grant such other and further reliefs as may be deemed fit and proper in the facts and circumstances of the case;" 6. The applicants have averred that though the applicants were directly concerned with the subject matter of the deed of assignment, more particularly 1344 equity shares, the applicants were not made parties to the above-said application. It is also pointed out that subsequently, the recovery officer closed the recovery proceedings by recording that the amount to be recovered was to be treated as NIL. The applicants have further averred that since no amount remained to be recovered on account of closure of the recovery proceedings, the applicants were entitled to return of the equity shares. However, instead of returning the equity shares, the above-said application was preferred by IDBI. It is further stated that since the applicants were not parties to the above-said application, they were not aware about the proceedings of the said application and disposal thereof. However, when they came to know about the proceedings and order for transfer of the shares in favour of respondent No.2 in February 2012, they asked for return of the shares. On the above ....
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.... shares of the applicants were neither the debts or assets of the company and therefore, IDBI could not have transferred rights, title and interest in the shares in favour of respondent No.2. Mr. Shah submitted that as per Section 176 of the Contract Act, pawnee gets right to sell or assign rights in the pledged goods only after giving notice of recovery of the loan amount to the pawnor and his failure to comply with the notice. Mr. Shah submitted that when such is the requirement of law, the applicants were vitally concerned by the Company Application No.414 of 2007 and therefore, they were required to be joined as parties and required to be heard before passing order dated 25.8.2008 by this Court. 12. Learned advocate Mr. Shah submitted that the IDBI was otherwise not entitled to move Application No.414 of 2007 seeking ratification of the action of assignment and for transfer of the shares in favour of respondent No.2 as after executing deed of assignment dated 25.8.2007, it lost all its rights to take any action in respect of the debts, assets of the company or pledged shares. Mr. Shah submitted that when the IDBI lost such rights after the deed of assignment, it could not ha....
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....e the application is opposed on the ground that the same is grossly delayed and barred by limitation, for which no explanation is given in the application, the applicants in second thought adopted a clever and mischievous idea of deleting word review and the prayer for condonation of delay. Mr. Soparkar submitted that under the guise of prayer for recall, the applicants want review of the order which is not permissible as held by the Hon'ble Supreme Court in the case of Cine Exhibition (P.) Ltd. v. Collector, District Gwalior [2013] 2 SCC 698. Mr. Soparkar submitted that unless the Court first review its order, recall of order is not possible and therefore, even if recall of the order is prayed, the law of limitation would apply. Mr. Soparkar submitted that as per the Limitation Act, application for review is to be filed within three months. Mr. Soparkar submitted that even application for recall would fall within residuary Article 137 which provides for three years time limit. Mr. Soparkar submitted that since there is no application or explanation for delay in the present application, this Court may not entertain the application even though the same is now restricted only for....
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....knowledge about the purchase and assignment of rights in the shares since the year 2007-2008 in favour of respondent No.2 still no action was taken for more than four years by the applicants. Mr. Soparkar submitted that the applicants since have not come with clean hands, this Court may not exercise the discretionary jurisdiction in their favour . 19. Nobody has appeared for IDBI- respondent No.1. 20. Learned advocate Mr. R.N. Desai appearing for the Liquidator drew the attention of the Court to the Official Liquidator report at page 215 to point out that after the Court passed order in Company Application No.414 of 2007, neither the IDBI nor respondent No.2 approached the Liquidator for transfer of the shares in terms of the order dated 25.8.2008 and therefore, the Liquidator has not effected transfer of the shares in favour of respondent No.2. Though learned advocate Mr. Desai wanted to argue on merits of the Scheme, since the Court was of the view that Mr. Desai can canvass such arguments at appropriate time, if so required, learned advocate Mr. Desai has reserved his arguments to be canvassed later on. 21. Learned advocate Mr. A.L. Shah however in rejoinder submitted t....
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.... means this agreement and the transactions hereby intended and contemplated. (b) Borrower means Prasad Mills Ltd. (in liquidation) a company within the meaning of the Companies Act, 1956 and having registered office at Raikhad, Ahmedabad and having been under the winding up pursuant to the order/s of the Hon'ble High Court of Gujarat being represented by the Official Liquidator attached to the High Court of Gujarat. (c) Financial Assets means the loan/financial facility originally availed of by the Borrower, from the Assignor under or pursuant to the Loan Agreement(s), deeds and/or documents executed therefore and underlying security which are more particularly listed out in 'Schedule-A' hereto (hereinafter referred to as "Loan Documents) , all the amounts due by the Borrower in respect thereof, including principal, interest, compound interest and all other monies whatsoever stipulated in, or payable by the Borrower in respect thereof, together with any security interest created to secure the repayment of the same. (d) Guarantors means the persons who have undertaken obligation to make payments to the Assignor IDBI in the event of default by t....
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.... incurred by him in respect of the possession or for the preservation of the goods pledged. 174. Pawnee not to retain for debt or promise other than that for which goods pledged. Presumption in case of subsequent advances.- The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee. 175. Pawnee's right as to extraordinary expenses incurred.- The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged. 176. Pawnee's right where pawnor makes default.- If pawnor makes default in payment of the debt, or performance; at the stipulated time or the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of su....
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....assignee of the applicant in future transactions which may take up in the winding up proceedings." 31. In the case of ICICI Bank Ltd. (supra) relied on by learned senior advocate Mr. Soparkar, the Hon'ble Supreme Court has held and observed in para 46 to 50 as under:- '46. As stated above, an outstanding in the account of a borrower(s) (customer) is a debt due and payable by the borrower(s) to the bank. Secondly, the bank is the owner of such debt. Such debt is an asset in the hands of the bank as a secured creditor or mortgagee or hypothecatee. The bank can always transfer its asset. Such transfer in no manner affects any right or interest of the borrower(s) (customer).Further, there is no prohibition in the BR Act, 1949 in the bank transferring its assets inter se. Even in the matter of assigning debts, it cannot be said that the banks are trading in debts, as held by the High Court(s). The assignor bank has never purchased the debt(s). It has advanced loans against security as part of its banking business. The account of a client in the books of the bank becomes Non Performing Asset when the client fails to repay. In assigning the debts with underlying securi....
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.... has purchased the debt for a considerably discounted price or because that price is only payable after a period of credit. Nor will the assignment be contrary to public policy simply because the assignee may make a profit on the transaction at the end of the day. If there was no prospect of a profit, Hobhouse LJ observed, commercial entities would never purchase debts." 50. Similarly, the following proposition in Chitty on Contracts, 27th edn. (1994) at para 19.027 is relevant to be noted. "It is also well established that a claim to a simple debt is assignable even if the debtor has refused to pay. The practice of assigning or 'selling' debts to debt collecting agencies and credit factors could hardly be carried on if the law were otherwise."' 32. The pledged goods are not debt but are security and creditor is under obligation to preserve such security till his dues are repaid by the borrower. As held by the Hon'ble Supreme Court, the debt is an asset in the hands of the bank as a secured creditor and the bank can always transfer its assets and such transfer in no way affects any rights or interest of the borrower. However, Hon'ble supreme....
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.... case of a pledge, however, the legal title to the goods pledged would not vest in the pawnee. The pawnor has only a special property. A pawnee has no right of foreclosure since he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law. In this sense a pledge differs from a mortgage in view of the foregoing the pawnee in the instant case i.e. the Government of Uttar Pradesh could not be treated as the holder of the shares pledged in its favour. The Cotton Mills Company continued to be the member of the Polytex Company in respect of the said shares and could exercise its rights under section 169 of the Act.' (2) In the case of Standard Chartered Bank v. Custodian [2000] 25 SCL 221, the Hon'ble Supreme Court has held and observed in para 41, 44, 45 and 46 as under:- 41. Before we deal with the main contention it will be pertinent to note that in so far as the right shares were concerned, it was accepted by all the parties that as the appellant bank had paid for these right shares the same belong to it and they were entitled to keep them irrespective of the question whether they formed part of the ple....
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....with Sections 148 and 160 of Contract Act, it would appear that when goods are bailed for securing payment of debt or the performance of a promise the bailor would get a right for the return of the said goods when the purpose is accomplished, namely, the debt is returned or the promise is performed. At the same time Section 176 provides for pawnee's right when pawnor makes default. This section not only gives the pawnee the right to retain the goods pledged as collateral security but also entitles the pawnee to sell the pledged goods after giving pawnor reasonable notice of the same. If the proceeds of the sale are less than the amount due, the pawnor continues liable to pay the balance. On the other hand if the proceeds realised on the sale being made are greater than the amount due the pawnee is under obligation to pay over the surplus to the pawnor.' (3) In the case of Bank of Rajasthan Ltd. v. Hajarimal Milap C. Surana [2005] 10 SCC 238, the Hon'ble supreme Court has held and observed in para 5 and 6 as under:- '5. A plain reading of this agreement shows that the respondents have admitted that a sum of Rs. 58.07 lakhs was due and payab....
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....t still remains. The sale is only towards satisfaction of that debt.' 34. In the case of Prabhat Bank Ltd. (supra), relied on by learned advocate Mr. Shah, the Court has held and observed in para 5 to 8 as under:- "5. Two contentions were raised by the learned counsel before me. First, that the term in the agreement empowering the Bank to sell the securities for realising the debt due from the respondent being unqualified, it was not necessary to comply with the provisions of S. 176 of the Contract Act. Secondly, it was urged that the letter sent by the bank on 5- 8-1948 asking the respondent to pay up the money due to the appellant, and the reply of the defendant, dated 13-8- 1948 asking for time up to the 15th September, 1948 and requesting the postponement of the sale of securities clearly indicated that the respondent had notice of the intended sale of the securities pledged with the Bank. Consequently, so it was urged, the sale of the securities by the appellant Bank was legal and the suit for recovery of the balance was maintainable. 6. Section 176 of the Contract Act provides that if the pawner makes a default in payment of the debt in respect of whi....
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....a suit against the pawner upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawner reasonable notice of the sale. In Hulas Kunwar v. Allahabad Bank Ltd., AIR 1958 Cal 644, it was held that the provisions of S.176 relating to a "reasonable notice of the sale" are mandatory. In AIR 1960 Andh Pra 272, Wangapally Latchiah v. Peddi Laxmiah, it was held that before exercising the power of sale the pawnee should give to the pledger reasonable notice of the sale. In order that that provision should not be made nugatory, the proper interpretation to put on S.176 is to hold notwithstanding any contract to the contrary notice has to be given. At the time of entering into a contract of pledge the pawner cannot agree to waive notice as it would be inconsistent with the provisions of S.176. In Haridas Mundra v. National and Grindlays Bank Ltd., AIR 1966 Cal 132, it was held that the pawner is entitled to reasonable notice under S.176. In Prabhat Bank Ltd. v. Babu Ram AIR 1966 All 134. It was held that a notice of the character contemplated by S.176 cannot be implied. Such notice must be clear and specific in its langu....
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....Court to substitute him in place of creditor and to recognize him as creditor of the company in the winding up proceedings. 39. As regards the jurisdiction of the Company Court for rectification of registers of the members of the company for the purpose of transfer of the shares, the decision in the case of Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. [1998] 17 SCL 463 (SC) needs to be referred. In the said decision, the Hon'ble Supreme Court has held and observed in paragraph Nos.24,26,27 and 28 as under:- '24. First the scope of Section 155 and Section 446 to be understood to be entirely in different fields. Section 155 deals with power of the Court to rectify Register of Members maintained by a Company. Section 441 deals with commencement of winding-up by the Court. Section 442 deals with the power of the Court to stay or restrain proceedings against the company, at any stage after the petition for winding-up is filed but before a winding-up order is made. A creditor or a company may apply to the Court having jurisdiction to wind-up the company to restrain all further proceedings in any suits or proceedings against the Company. Sec....
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....ch contentious issues for adjudication not falling under it. Thus in other words, the Court under it has discretion to find whether the dispute raised are really for rectification or is of such a nature, unless decided first it would not come within the purview of rectification. The word 'rectification' itself connotes some error which has crept in requiring correction. Error would only means everything as required under the law has been done yet by some mistake the name is either omitted or wrongly recorded in the register of the Company. In T. P. Mukherjee's Law Lexicon, fifth revised edn.; "The expression rectification of the register used in Sec. 155 is significant and purposeful. 'Rectification' implies the correctness of an error or removal of defects or imperfections. It implies prior existence of error, mistake or defect.... the register kept by the Company has to be shown to be wrong or defective." Strouds Judicial Dictionary : "Rectify - Altering the register of a company so as to make it conformable with a lawful transfer." In Venkataramaiya's Law Lexicon, 2nd Edn. : "The act to be done under the powers of that ....
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....y matter which is necessary or expedient to decide in connection with the rectification.' 40. If the applicants were joined in the application, they would have apprised the about the correct position of law as regards the Court's power to ratify/ validate the act or agreement of assignment between the creditor of the company and third party- respondent No.2 and about the power of the Court to order transfer of the shares. 41. The relief sought in the Company Application No.414 of 2007 were directly affecting the applicants. The applicants were therefore, required to be joined and heard in the application preferred by IDBI. No order affecting the applicants could have been passed without hearing the applicants. Learned advocate Mr. Shah was right when he submitted that if the applicants were joined as parties, they could have pointed out that the IDBI having assigned its rights against borrower and in security, the application at its instance was not maintainable and the Court would have no jurisdiction to grant prayers made therein. 42. Learned senior advocate Mr. Soparkar however strenuously contended that the applicants are in fact seeking review of the order dat....
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....cants in filing review petitions with additional documents, stated to have been suppressed by the opposite side, which would be dealt with in accordance with law. The interlocutory applications are dismissed." 43. At this stage, following judgments on review and recall need to be referred. (1) In the case of Pohla Singh Alias Pohla Rami v. State of Punjab [2004] 6 SCC 126, the Hon'ble Supreme Court held and observed in para 18.1 and 19 as under:- "18.1. In this petition Gurcharan Singh son of Dhanna Singh was arrayed as respondent No. 4 and the judgment shows that the petition was contested only by the said respondent. If a decision rendered in a writ petition adversely affects the interest of a third person who was not impleaded as party in the writ petition, it is always open to him to ask for recall of the judgment which has been rendered without affording any opportunity of hearing to him. An identical question has been examined by a Constitution Bench in Shivdeo Singh v. State of Punjab, AIR 1963 SC 1909. Here in a writ petition filed by A for cancellation of the order of allotment passed by the Director of Rehabilitation in favour of B, the High Court....
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....ued and not from the date of execution of the agreement. It was also submitted that the letters dated 25.04.2005 and 06.06.2005 were issued by 2 or 3 members of the society who were acting with ulterior motive and in collusion with the rival developer. Even the SRA to whom the letter dated 06.06.2005 was addressed in its counter affidavit filed before this Court in the present proceedings has stated that they did not take notice of the said letter of termination as the letter was not supported by the relevant resolution of the society. After 11.03.2005, Sigtia approached the SRA on several occasions requesting for the issuance of the Letter of Intent but since no response was coming from the Housing Department of Government of Maharashtra on 10.06.1995. In our view after the dismissal of the special leave petition No. 19848 of 2005, the order of the High Court dated 11.03.2005 attained finality and there was no proposal of M/s. Keya Developers before the SRA on 13.04.2006 and, therefore, there was no question of SRA considering the proposal made by the new developer. In our view, Sigtia was a necessary party to the writ petition and to the special leave petition No. 10281 of 2006 a....
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....or directions filed in special leave petition No. 19848 of 2005 and that the effect of the order dated 13.04.2006 is that the order of the High Court dated 11.03.2005 which was not challenged in the special leave petition attained finality and that in the application for directions filed in the special leave petition No. 19848 of 2005 the society had raised the issue of termination of agreement of Sigtia and appointment of Keya developers and the same stood dismissed with the dismissal of the said special leave petition. Therefore, as rightly pointed out by Mr. Arun Jaitley in any subsequent proceedings where the termination of the agreement of applicant Sigtia with the society and replacement of Sigtia a new developer is a subject-matter, Sigtia is a proper and necessary party to it. We see much force and substance in the said argument. In our view, the applicant Sigtia has also the right to have a hearing before the SRA along with Keya Developers, the new appointee.It must also be seen that the relief sought in the special leave petition No. 10281 of 2006 though only against SRA but in effect against the applicant Sigtia and, therefore, Sigtia is the necessary party to any procee....
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....10281 of 2006 and in the light of the directions given by the High Court dated 11.03.2005 in writ petition No. 988 of 2004 and of the order dated 04.05.2006 in writ petition No. 77 of 2006. We have, therefore, no hesitation to recall our order dated 27.06.2006 in special leave petition No. 10281 of 2006. Since the entire matter was argued at length now by all the respective senior counsel, there is no necessity to rehear special leave petition No. 10281 of 2006. This apart in the concluding portion of our order dated 27.06.2006 in special leave petition No. 10281 of 2006, this Court directed the SRA to issue proper orders within two weeks from 27.06.2006. The said direction is also not correct. This Court ought to have directed the SRA, if at all, to consider issuing of the Letter of Intent in favour of Keya Developers in view of the replacement of previous Developers M/s. Sigtia. 41. We, therefore, allow the application I.A. No. 3 of 2006 filed by the applicant Sigtia and recall our order dated 27.06.2006 passed in special leave petition No. 10281 of 2006 and pass the following order :- As directed by the order in writ petition No. 988 of 2004 dated 11.03.2005 an....
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....nted licences. In these circumstances, we recall the directions in paragraph 40 of the aforesaid judgment. However, if anybody has a grievance against the grant of licences or in the policy of the State Government, he will be at liberty to challenge it in appropriate proceedings before the appropriate Court. The writ petitions are disposed of with these directions.' 44. The Company Court has inherent powers under Rule 9 of the Rules to pass necessary orders to do complete justice to the parties by recalling its order if it finds that there was total lack of jurisdiction to deal with particular application whereon the order was made and it was not properly apprised of the correct facts or correct position of law by party in whose favour the order is passed. Present is not the case where the applicants are seeking review under the guise of seeking modification/ clarification or recalling of the order. The applicants have come with clear case that they are equity shareholders of the company under liquidation which were pledged by them with IDBI by way of security for the loan advanced by the IDBI to the company. In respect of such shares, if the IDBI wanted to get its action of....