TaxTMI 
TaxTMI 
2026 (9) TMI 358
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....navi Dhure for Appellant in APP(L) No. 10666/2026, for Respondent No. 3 in APP(L) No. 10663/2026 and for Respondent No. 2 in APP(L) No. 10776/2026. Mr. Mohit Khanna a/w Mr. Pranav Narasaria, Tejas Popat, Ms. Shanvi Punamiya, Mr. Bhupen Garud i/by Shanvi Punamiya for Respondent Nos. 4 & 5 in all Appeals. Mr. Cyrus Ardheshir, Senior Advocate i/by Yash Jariwala for the Appellant in APP(L) No. 10663/2026, for Respondent No. 3 in APP(L) No. 10666/2026 and for Respondent No. 3 in APP(L) No. 10776/2026. Mr. Ranjeev Carvalho a/w Ms. Apurva Thipsay & Mr. Satyajit Roul, for Official Liquidator in all Appeals. JUDGMENT (PER : KAMAL KHATA, J.):- 1) By these Appeals, the Appellants seek to set aside the impugned Judgment dated 23rd February, 2026, read with Order dated 27th February, 2026, passed by the learned Single Judge in the Interim Application No. 6953 of 2025 ("IA 6953") moved in Company Petition 385 of 2002 ("CP 385/02"), and allow the IA 6953. 2) The Appellants ("Grand View"), Respondent No. 2 ("Forbes"), hold 53.25% shareholding in Svadeshi Mills Company Limited ("the Company"), which is in liquidation. They filed an Interim Application No. 6953 of 2025 under Sec....
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....oposal secures payment of long-outstanding dues to the workers that have been pending since 5th September, 2005, the date of winding-up order, which the liquidation process had failed to achieve. He submits that, the revival will create value not solely for the Company but all its stakeholders. Moreover Rs. 169 crores have been already disbursed to the workmen. 5) He then referred to the decision of the Supreme Court in Meghal Homes Pvt. Ltd. vs Shree Nivas Girni KK Samiti reported in (2007) 7 SCC 753, to submit that the Apex Court had propounded a threefold test for consideration of any Application under Section 466 of the Companies Act, namely; (i) public interest, (ii) commercial morality, and (iii) bona fides. He submitted that Grand View's revival proposal meets and satisfies the threefold test. By reviving the Company substantial value for all its stakeholders is generated and therefore would be in public interest. Arriving at a settlement Agreement for payment of long-outstanding dues to the workers through the High Court appointed Committee satisfies the commercial morality and deposit of the amount of Rs. 240 crores demonstrate Grand View's bo....
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..... He submitted that, in view of the above the Appeal be allowed. 7) Per contra, learned counsel Mr. Khanna, appearing for Respondent Nos. 4 and 5 submitted that, the dues of Grand View are highly inflated, since interest has been claimed at 16% per annum, which is impermissible, given that Grand View stands inside the winding-up, and not outside it. He submitted that, Grand View and its predecessor had been paid the dividend of Rs. 16 crores, a fact suppressed before the learned Single Judge. He submitted that Grand View has failed to disclose how the deferred dues of Grand View and Forbes would be treated once the Company is out of the winding-up. He submitted that, after the Company came out of winding-up by virtue of the Order dated 9th October, 2023, Grand View and Forbes converted the liabilities against the Company into long-term loans and that this was a device by which they would enrich themselves at the cost of other shareholders. He submitted that, the payment to badli workers could not be treated as the sole criterion for allowing an application under Section 466 of the Companies Act. 8) Mr. Khanna submitted that, Grand View had raised Rs. 240 crores by encumbering....
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....e prime land in Mumbai. 11) Mr. Khanna, learned counsel for Respondent Nos. 4 and 5 laid emphasis on the fact that, Grand View has not stated whether its security has been relinquished and what interest is being charged on its outstanding dues. This is relevant because, as a secured creditor standing outside the winding-up, Grand View had suppressed the fact that it had received a dividend, standing inside the winding-up, Grand View cannot claim inflated interest and is entitled to interest only as per Section 179 of the Companies (Court) Rules, 1959. He stressed that, this fact was relevant because Grand View had only deferred its dues and would later seek to recover the same from the Company once it is out of the winding-up which would mean recovery of its inflated dues, to the detriment of the balance 47% holders. In this manner, Grand View would unjustifiably enrich itself. Learned counsel submitted that, once the dues are inflated, the argument that Grand View and Forbes are majority shareholders does not come to their aid. Accordingly, he submitted that the Appeals be dismissed. 12) Mr. Khanna relies upon the following decisions in support of the aforesaid contentions :....
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.... and work towards revival. 14) Referring to the previous orders dated 14th October 2011, 23^rd August 2013, 21st December 2022, 9th October 2023, 22nd January 2025, Mr. Joshi reiterated that, all issues raised in the previous proposals have been redressed. The workmen are now supporting the revival. The objects clause of the company has been amended to include real estate business. In view thereof the Appeal deserves to be allowed. 15) Mr. Ardheshir, learned senior counsel appearing for the R.M.M.S - Appellant in Appeal (L) No. 10663 of 2026, Respondent No. 3 in Appeal (L) No. 10776 of 2026 and Appeal (L) No. 10666 of 2026, too adopted the arguments of Mr. Dwarkadas and supported the Appeal. He additionally submitted that, the workers stand to substantially benefit from Grand View's proposal. He drew our attention to the table of benefits at page No. 2134 of the Appeal Memo. He submitted that, although R.M.M.S had earlier objected pursuant to the Orders of this Court, a Committee formed pursuant to this Court's Order, which negotiated with Grand View and raised the figure from approximately Rs. 70 crores to more than 240 crores and a settlement agreement was arrived at, which....
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....rkers would not be entitled for Retrenchment Allowance in liquidation. 4. Entitlement of workers who retired or died between 2002 & 2005. Approximately 300 ex-workers who either retired or died between 2002 & 2005 would also be entitled to the benefits (like retrenchment) under the Agreement for Settlement which are not available under the liquidation process. 5. Timeline of payment. As per the Agreement for Settlement, the ex-workers would get payment expeditiously. In liquidation, however, there is no certainty as to receiving payment as the Official Liquidator has not even been able to adjudicate all the claims yet. Furthermore, for various reasons, such as encroachments, title related issues, it is not possible to sell the property of SMCL at the present moment, and the same may take many years. 6. Housing benefits. Upon SMCL being brought out of liquidation pursuant to the Agreement for Settlement, approximately 800 ex-workers residing in chawls upon the property would get free housing as per law. 120 of these ex-workers have been sent eviction notices as their chawls are dilapidated. Remaining ex-workers would be entitled to subsidized housing as....
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....a check on the winding up and to uphold the principles laid down in various judgments. 22) We also queried learned counsel for Respondent Nos. 4 and 5, whether the two shareholders had the backing of some investor who desired to use the lands to run a textile industry, or whether it was someone who wished to acquire the lands through a public auction for commercial exploitation or redevelopment. The response was that it was neither. 23) From our viewpoint, the two shareholders have no way to secure the workmen's dues that have been outstanding since over two decades. They are contesting about the interest chargeable by Grand View and Forbes. What would they do with the long-term loans? and how would the two benefit after reviving the company. They have nothing to say about the outstanding dues of the 2834 workmen. All they say is that the Supreme Court has held and the learned Single Judge has rightly followed that, workmen's consent cannot be the singular driving force for accepting the proposed scheme of revival. 24) This litigation has been conducted to oppose the revival and ensure that the Company is liquidated and its assets sold by public auction. In our view, this ....
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....ds and redeveloped them, free from scrutiny from either the Court or the two shareholders? Pertinently, the Supreme Court in Meghal Homes rejected the proposal of alienating the lands to another developer for revival of the Company. In our view therefore, this issue does not arise herein. 27) It cannot be disputed that the Grand Views and Forbes together hold 53.25% shareholding stake in the Company. The question is whether two shareholders can have any real role to play in the working of a Company, when the only benefit that these two Respondents stand to derive after sale of the land is the monetary value of their shareholding following discharge of all the Companies liabilities, nothing more. Can the two shareholders insist that, the revival of the Company should be permitted only if the majority shareholders continue to run it as a textile mill, as it once was and do not change its object to real estate, when the sole asset remaining is 48 Acres of land? What interest would be served if the land were sold by public auction? How would the company be revived, or the textile mill restarted? Counsel appearing for Respondent Nos. 4 and 5 has no answer to these questions. No preco....
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.... "The doctrine of election could have no place in the present case. The applicant is not faced with alternative rights. It is the same right which he claims, but in larger degree. In Mills v. Duckworth [Mills v. Duckworth, (1938) 1 All ER 318 (CA)], a plaintiff who had been awarded damages for negligence had taken the judgment sum out of a larger sum paid into court and had then appealed against the quantum of damages, and was met by a similar objection to his appeal. Greer, L.J., in overruling the objection, pointedly said, at All ER p. 321: 'He [the plaintiff] said: "I am not going to blow hot and cold. I am going to blow hotter.' Here the applicant is not faced with a choice between alternative rights. He had exercised an undisputed right to compensation, and claims to have a right to more. One has not lost one's right to a second helping because one has taken the first." (Emphasis supplied) It is for the Appellants to decide, being not only secured creditors but also majority shareholders of the Company. Most importantly they are looking at the Company's revival and not winding up which would entail investing further funds in the....
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....f the Order dated 14th October 2011, reproduced below for ready reference: "7. The winding up order is then referred to and then in para 7 of the affidavit in support, this is what is stated: "In recent years, the Government of Maharashtra has initiated various activities for the promotion and facilitation of development of mill lands in Mumbai. Increasing the availability of housing has also been a thrust area. The said initiatives, alongwith the available immovable properties of the Company together, offer a favourable platform for the company to undertake real estate development operation. Though the company was in textiles business prior to winding up, due to disposal of all the stock in trade and entire plant and machinery, it is no longer viable to run the business as a manufacturer of textiles. In the present circumstances, in Mumbai even otherwise a textile mill is not viable. The applicants are part of the Shapoorji Pallonji Group, Shapoorji Pallonji Group has expertise in the real estate business and, therefore, intends to enable the company to undertake real estate development applicant No. 2 has shown its willingness to bring in funds to meet all the l....
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....uidation. The proposal could not, therefore, envisage a sale, as that would risk being read as precisely such as a ruse. The scheme rightly contemplates redevelopment of the property, not sale of the land. A company redeveloping its property benefits its investors, and no contention to the contrary can be sustained - it would amount to nothing more than a baseless conjecture. 10) The argument that the company had no intention to divest or alienate the assets was rejected by the Single Judge in its order dated 14th October, 2011, and upheld by the Division Bench in its orders dated 23rd August 2013, and by the Supreme Court in its order dated 23rd February 2016. The circumstances have since changed. All claims of the secured and unsecured creditors are being settled. All workmen, including those whose claim would ordinarily not have been allowed, are also being settled, pursuant to the deal negotiated with the Appellants by the Court-appointed committee. As Mr. Dwarkadas has submitted, all the criteria enunciated by the Supreme Court have now been satisfied. Therefore, in view of the liberty reserved by the Apex Court to file a fresh Application, such an applicatio....
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....nding. Why, then, should the two shareholders expect these 2834 workmen to forgo their negotiated figures and settle for less? Do they offer any assurance to the workmen in that regard? At present, there is no answer at all. 32) We find that the learned Single Judge erred in observing that the proposal is a ruse to enable Grand View and Forbes to exploit the Company's lands without public auction. Assuming for the sake of argument it is true what is wrong? Profit making is neither a vice or something from which investor ought to be discouraged from pursuing. Redevelopment of lands by the Company does not amount to their transfer or divestment. Further, the learned Single Judge, despite noting that the proposal does not contemplate alienation of the Company's land, has drawn the opposite and erroneous conclusion. 33) It cannot be concluded that the revival proposal fails the test of commercial morality merely because repayment of the dues owed to Grand View and Forbes has not been expressly crystallized. Deferral of repayment is a commercial decision and cannot, ipso facto, give rise to an inference that the proposal lacks commercial morality. 34) From a positive standpoint....
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....liabilities, their 0.07321% share would amount to no more than Rs 2,19,63,000/-. At best, they would be entitled to that. This was precisely the question posed to the counsel representing them to which there was no response rather a stoic silence was maintained. This vindicates our belief that there is more to their objection than what meets the eye. They are in all probability, a front to someone with an eye on the Company's land. 37) The real question, however, is whether the R.M.M.S. - comprising of 2834 employees and the badli workers (who are otherwise ineligible and would have to prove their eligibility before the Liquidator) - who are the beneficiaries under the settlement agreement, would receive what they had negotiated with the majority shareholders. The answer is in the negative, resulting in a profound imbalance between the bargain struck between by the two shareholders and that struck on behalf of 2834 employees. 38) In Meghal Homes (supra), the creditors, who were not themselves developers, chose to sell the lands under guise of reviving the company. That is not the position here, it is precisely the converse. Redevelopment would be undertaken here, to the benef....