M-S New Cawnpore Flour Mills Vs M-S Bakemans Industries PVT LTD On 20 December, 2010

M/S New Cawnpore Flour Mills vs M/S Bakemans Industries Pvt Ltd on 20 December, 2010
Delhi High Court

Author: Sanjiv Khanna
%
20.12.2010
Present:
Mr. C.A. Sundram, Sr. Advocate with Mr. P.C.

Sen & Ms. Aanchal Yadav for Ceylon Biscuits
Limited.
Mr. Abhinit Das for the ex-management.
Mr. Rakesh Khanna, Sr. Advocate with Mr. Rajiv
K. Garg & Mr. Ashish Garg in CA No.
1367/2005.
Mr. Chinmoy Pradip Sharma for SICOM
Limited.
Mr. Rajiv Behl for the Official Liquidator.
Mr. Atul Sharma for IDBI/IFCI.
CA No. 900/2008 (filed by Ceylon Biscuits

Limited), CA No. 1767/2010 (filed by management
of the company under provisional liquidation) and
CA No. 495/2010 (filed by the Official Liquidator)
in CP No. 204/2003
1.
Bakemans Industries Private Limited (BIPL, for short) was in the business of making and marketing
biscuits and allied products under the trade mark/brand Bakeman since 1978. BIPL had availed
loan of Rs. 17 Crores from State Industrial Corporation Of Maharashtra Limited (SICOM, for short)
and had defaulted in repayment. SICOM took over possession of BIPL factory at Patiala on 18th
July, 2003 under Section 29 of the State Financial Corporations Act, 1951. The operations were shut
and the factory was locked.
2. In 2003, 16 separate petitions were filed by creditors of BIPL under Section 433(e) and (f) read
with Section 434 and 439 of the Companies Act, 1956 (Act, for short). By order dated 6th April,
2004, CP No. 204/2003 filed by New Cawnpore Flour Mills Private Limited was admitted and
citations were directed to be published. Looking into the allegations and particularly the conduct of
the management of BIPL, the Official Liquidator attached to this Court was appointed
C.P.No.204/2003 Page 1 as the provisional liquidator to take over assets, properties and books of
accounts. It was observed in this order that it was not necessary to pass separate orders in each
winding up petition and the order would operate in favour of creditors as if it has been made on a
joint petition of the creditors.
3. In the meanwhile, BIPL purportedly approached NRI Lead Bank (which is a company not a Lead
Bank) seeking financial assistance. It is not clear what exactly happened thereafter but the
purported disputes between BIPL and NRI Lead Bank were referred to Arbitral Justice of ADR
Arbitration, stated to be a body recognized by the Government of India in terms of Section 21 of the
Arbitration and Conciliation Act, 1996. The purported reference was in terms of an alleged
arbitration agreement. The arbitration proceedings were closed as the tribunal opined that there
Indian Kanoon - http://indiankanoon.org/doc/33293834/
was no genuine arbitration agreement. However, new set of arbitrators were subsequently
appointed and rendered an award dated 16th August, 2003. Subsequently, NRI Lead Bank filed an
execution petition on the basis of written agreement/award dated 16th August, 2003 passed by
Board of Conciliation. Sister concern of BIPL and SICOM were also made a party to this execution
proceeding. Subsequently, Industrial Development Bank of India (IDBI), Industrial Finance
Corporation of India (IFCI) and some other banks/State Financial Corporations were impleaded as
parties.
4. Management of BIPL relying upon the purported award of the Board of Conciliation took forcible
possession of the factory on 14th September, 2003. SICOM thereupon filed an application in the
execution petition and vide order dated 15th September, 2003 status quo order was passed.
C.P.No.204/2003 Page 2
5. On 28th November, 2003, an assurance was given by the management of BIPL in the execution
proceedings that they would come with a definite proposal for payment to the creditors. On 18th
December, 2003, the High Court in the execution proceedings directed the management of BIPL to
deposit Rs. 2 Crores failing which SICOM was at liberty to proceed with the statutory remedies
available to them under the State Financial Corporation Act, 1951. An undertaking was also given by
the Managing Director of BIPL.
6. SICOM obtained a valuation report of the property consisting of land measuring 30544 square
yards and a building comprising of three floors having RCC construction with plant and machinery
at Patiala, Punjab (hereinafter referred to as the property, for short). There were also unpacked
machineries, which had been imported from abroad.
7. As the management of BIPL failed to deposit Rs. 2 Crores and did not submit a definite proposal
in terms of the order dated 28th November, 2003 in the execution proceedings, SICOM was given
liberty to proceed with the sale. On 8th February, 2004, SICOM advertised for sale of the factory in
the newspapers.
8. On or about 15th March, 2004, Ceylon Biscuits Private Limited (CBL, for short) filed an
application before the execution court seeking permission to inspect the property disclosing that
they had been negotiating with the management of BIPL.
9. CBL had shown willingness to submit bid and were allowed to do so vide order dated 16th March,
2004. The matter was again taken up before the civil court/execution court on 24th March, 2004
when CBL made an offer of Rs. 12.5 Crores and deposited earnest money of Rs. 25 lacs in dollars.
The second highest bidder had submitted a bid C.P.No.204/2003 Page 3 of Rs.11.7 Crores.
10. On 19th April, 2004, the proceedings pending before the civil/execution court were directed to
be listed before the Company Court in view of the winding up petition CP No. 204/2003.
11. Now coming back to the company petition, SICOM filed CA No. 414/2004 with the prayer that
the order dated 6th April, 2004 appointing provisional liquidator and asking him to take over
assets, properties and books of accounts of BIPL should be recalled. By order dated 16th April,
2004, an interim direction was passed that possession of SICOM in the above noted factory would
not be disturbed till the next date.
12. Another application CA No. 729/2004 was filed in CP No. 204/2004 by the management of
BIPL. This application was for direction to SICOM not to sell the property and for maintaining
status quo in respect of the property. This application was disposed of vide order dated 17th July,
2004. The application was dismissed. In this order it was noticed that in the civil/execution
proceedings, bids had been received from three parties, including CBL. In the order dated 17th July,
2004, it is recorded that the bid of Rs. 12.5 crores given by the CBL in the execution/ civil
proceedings was the highest and the same was accepted by the Company Court.
13. This order confirming the sale of the property in favour of the CBL was taken in appeal before a
Division Bench but without success and this decision was made subject matter of challenge before
the Supreme Court in Civil Appeal Nos. 3628/2008 and 3629/2008. The said civil appeals were
disposed of vide detailed judgment dated 16th May, 2008.
14. The Supreme Court in its detailed judgment reported in (2008) 15 SCC 1 has set out the entire
history of litigation and respective C.P.No.204/2003 Page 4 stands of the parties. In paragraph 36 of
the judgment, the Supreme Court has set out the core issues that arose for consideration before
them. The said paragraph reads as under:
"36. The core issues which arise for our consideration in view of the rival contentions
of the learned counsel are:
(1) Whether in the facts and circumstances of the case the executing
court and consequently the Company Judge could have supervised the
purported sale of the assets of the appellant on behalf of SICOM
having regard to the provisions of Section 29 of the 1951 Act?
(2) Whether in a case of this nature and particularly having regard to
the fact that SICOM submitted itself to the jurisdiction of the
executing court and the Company Court, can now turn around and
contend that in effect and substance it had exercised its statutory
powers under Section 29 of the Act and allowed the same only to be
supervised by the learned Company Judge? (3) Whether the statutory
powers of a financial corporation as envisaged under Section 29 of the
1951 Act would prevail over the proceedings before a Company Judge
in a winding-up proceeding?
(4) Whether involvement of the Official Liquidator in the facts and
circumstances of the case and particularly in view of the fact that
Official Liquidator brought to the courts notice claims of other

creditors, the Company Judge ought to have dealt with the same in the
manner laid down in the Companies Act and/or the Rules framed
thereunder and/or the decision of this Court?
(5) Whether the High Court while exercising its powers under Section
433 of the Companies Act read with other provisions could ignore the
claims of the other creditors, and in particular the workmen, having
regard to the provisions of Section 529-A thereof.
(6) Whether the High Court while exercising its jurisdiction both in the execution
proceeding as also winding-up C.P.No.204/2003 Page 5 proceeding can, in the fact
situation obtaining herein, be said to have adopted a fair procedure.
(7) Whether in any event the High Court could have ignored the legal requirements
as regards the conduct of sale of the assets of the appellant only on the basis of: (1)
wrongful conduct on the part of the appellant in obtaining an award from the
Conciliation Tribunal; and (2) its failure to bring a better offer from another bidder."
15. The finding of the Supreme Court is that SICOM though secured creditor had
submitted itself to the jurisdiction of the Company Court and, therefore, the
jurisdiction, which was exercised by the Company Court was under the provisions of
the Act and not Section 29 of the State Financial Corporation Act, 1951. The Supreme
Court has recorded that the Official Liquidator had brought to the notice of the
Company Court claims of other creditors including workmen, who are entitled to pari
pasu payment under Section 529A and 530 of the Act. It was noticed that the Official
Liquidator had stated that 373 claims had been filed and the total amount demanded
was about Rs.100 Crores. There were also claims of Provident Fund and statutory
dues, which have to be given priority. It was held that the Company Court was wrong
in effecting the sale treating SICOM as an agent. This was impermissible and
contrary to the provisions of the Act. The Company Court was required to not only
look after interest of the mortgagee/mortgager but also under statutory obligation to
safeguard the interest of the workmen and other non- secured creditors. The
Company Court, it was observed is under statutory obligation to comply with various
provisions of the Act and the Rules before selling the property including provisions
related to valuation. The role of the Official Liquidator, who was appointed as
C.P.No.204/2003 Page 6 the provisional liquidator was emphasized. Paragraphs 74
to 81 of the judgment records the gist of findings and ratio why the Supreme Court
has set aside the sale which was confirmed vide order dated 17th July, 2004. The said
paragraphs read as under:"74. ....This is the meat of the matter. If the property which has been
put to auction was the prime property over which the fate of the
creditors depended, be they secured or non- secured ones, the
Company Court, in exercise of its equity jurisdiction could not have

obliterated it from its mind the cases of the others. If the assets belong
to the creditors, that must mean the whole body of the creditors and
not only one of the secured creditors. The inconsistency of it is selfevident, as, on the one hand, it is stated that the property of the
Company does not vest in the court or the Official Liquidator, on the
other hand, it is stated that it is vested in the body of the creditors and
not only in SICOM.
75. The High Court, therefore, could not have ignored the Official
Liquidator only on the ground that a provisional Official Liquidator
was appointed and not a regular Official Liquidator. The power and
functions of the provisional Official Liquidator for all intent and
purport would be the same as that of the Official Liquidator and,
therefore, it was not necessary for the Company Judge to wait till the
Company was wound up.
76. If the jurisdiction of a Company Judge is limited, any substantial
deviation and departure therefrom would result in unfairness. When
an order is passed in total disregard of the mandatory provisions of
law, the order itself would be without jurisdiction.
In this case, however, even otherwise a fair procedure was not adopted. We, however,
very much appreciate the anxiety on the part of the Court to see that otherwise just
dues of C.P.No.204/2003 Page 7 SICOM be realised. Conduct of a party plays an
important role in the matter of grant of a relief. However, only because the conduct of
a party was not fair, the same, by itself, cannot be a ground to adopt a procedure
which is unjust or unfair, particularly, when by reason thereof, not only the Company
itself but also other creditors are seriously prejudiced. We fail to see any reason as to
why the hearing of the case was to be preponed. Why even a days time could not have
been granted when a prayer for adjournment was made. The jurisdiction of the
Company Court is vast and wide. It can mould its reliefs. It may exercise one
jurisdiction or the other. It may grant a variety of reliefs to the parties before it. The
parties before the Company Judge are not only the company or the creditors who had
initiated the proceedings but also others who have something to do therewith. Even
in a given case a larger public interest may have to be kept in mind. The court may
direct winding up. It may also prepare a scheme for its restructuring.
77. We, therefore, are of the opinion that the Company Judge was not correct in its
view and passed the impugned judgments only having regard to the wrongful conduct
on the part of the appellant in obtaining an award from the Conciliation Tribunal or
failure to bring a better offer from another bidder.
78. The question which is really an intricate one is what relief can be granted. On the
one hand, the Company has committed wrongs, on the other, its property has been
sold in auction. Even a part of the property has been permitted by us to be taken out
of the country. The factory, we are told, has started operation. It has employed a large
number of workmen. Would that itself mean that we should refrain ourselves from
granting any relief? Direction issued by this Court in a case of this nature need not be
a narrow one.
C.P.No.204/2003 Page 8 The Court has to take into consideration the fate of not only
those workmen who are working but also those who have a claim against the
Company. We must also take into consideration the fate of the other creditors.
79. We, therefore, are of the opinion that interest of justice would be subserved if
while allowing the appeal, the learned Company Judge is requested to go into the
question afresh in accordance with the provisions of the Companies Act and hold a
fresh auction.
While doing so, indisputably, Ceylon Biscuits Pvt. Ltd.s offer would be considered.
The Company Judge may consider the question of grant of some preference to Ceylon
Biscuits Pvt. Ltd. but while an auction is to be held, there should be a proper
valuation of all the assets of the Company both movable and immovable.
80. The court, indisputably, may consider the question of framing an appropriate
scheme if it is found that there is a possibility of revival of the Company. In other
words, we leave all options open to the learned Company Judge as are available in
terms of the provisions of the Companies Act including adjustment of equities
amongst the parties.
81. Till, however, a final order is passed, Ceylon Biscuits Pvt. Ltd. would continue to
function not as an auction-purchaser but as a Receiver of the Company Court. Ceylon
Biscuits Pvt. Ltd. shall file all statements of accounts in regard to the amounts which
it had invested and all other requisite statements including the valuation of
machinery it had taken out of the country before the court. The court may appoint a
chartered accountant to verify the said statements. The court, if it thinks fit and
proper, may, apart from the provisional liquidator, appoint another person to
supervise the works and functioning of Ceylon Biscuits Pvt. Ltd. as a Receiver of the
court. As C.P.No.204/2003 Page 9 Ceylon Biscuits Pvt. Ltd. is being appointed as a
Receiver, it goes without saying that it shall act strictly under the supervision of the
court and abide by the orders which may be passed by it from time to time."
16. This Court is primarily concerned with the implementation of the directions given
by the Supreme Court in paragraphs 77 to 81 quoted above.
17. CBL took possession of BIPL factory of the property on 3rd March, 2005 from
SICOM. Sale certificate dated 29th October, 2007 was issued pursuant to an order
dated 6th July, 2007 passed by the Company Court. CBL incorporated a subsidiary,
Ceylon Biscuits India Private Limited (CBIPL, for short) on 5th April, 2005 for the
purpose of manufacturing and using the property. CBL also provided working capital
to CBIPL after its incorporation. After judgment of the Supreme Court, CBIPL
stopped production on 15th September, 2008. It is stated that this production was
stopped due to paucity and non availability of funds. CBL filed an affidavit in this
Court on 8th November, 2008 stating that CBIPL had stopped production with effect
from 15th September, 2008. This fact is not disputed. The property has not been put
to any productive use since then.
18. The case made out in application CA No. 900/2008 by CBL is that they have been
providing finance and working capital to CBIPL since its incorporation, which has
been incurring losses throughout. This fact has been confirmed by the statutory
auditors of CBIPL. As on 31st March, 2008, CBIPL owes CBL Rs.7,13,80,551/-. In CA
No. 900/2008, CBL has asked for the following reliefs:
C.P.No.204/2003 Page 10 "1. Reimbursement of Rs. 12.5 Crores which was deposited
with the Honble High Court as the auction price for the BIPL property together with
interest.
2. Reimbursement of Rs. 1.18 Crores spent on commissioning of plant and machinery
and maintenance and security of the land, plant and machinery purchased by CBL.
Interest in this amount is also claimed.
3. Reimbursement of Rs. 6.68 Crores being the cumulative loss incurred upto
31.03.08 by its subsidiary company CBIPL entrusted with the running the business of
manufacturing biscuits using BIP property and other assets.
4. Reimbursement of expenses incurred between 31.03.08 and 31.07.08 amounting
to Rs. 0.08 Crores.
5. Reimbursement of expenses incurred after July 2008 and till the property is reauctioned.
6. Permission to remove the plant and machinery brought in and purchased by CBL
from time to time."
19. Vide order dated 2nd December, 2008, Vaish and Associates, Chartered
Accountants were appointed to verify the statement submitted by CBL. They have
submitted a report in which some discrepancies/objections have been raised.
However, they have accepted that even after adjustment of certain amounts, CBL had
C.P.No.204/2003 Page 11 transferred to CBIPL Rs.10,89,65,576. It is also accepted
that CBL had transferred Rs.10,02,344/- to third parties for operations/startup

operations. They have stated that CBIPL has incurred/adjusted accumulated loss of
Rs.7,11,09,833/- and had installed new assets amounting to Rs.51,49,093/-. In the
report it is stated that under pre-operational expenses after adjustment the total
expenses incurred were Rs.52,57,321/-. Rs.14,50,577/- was incurred towards
maintaining assets after takeover. Rs.21,74,821/- was incurred on security and safety
of the premises. Rs. 9,44,321/- was incurred on making improvements, additions to
building, plant and machinery. There are certain other expenses, which have been
also explained and accepted in the report.
20. I am, however, not inclined to accept prayers 2 to 4 made in the application CA
No. 900/2008 despite the report of Vaish and Associates, Chartered Accountants.
Substantial expenditure has been incurred by CBL/CBIPL when they were operating
and running the factory. Obviously business losses and profits belong to either CBL
or CBIPL, they cannot be passed on to the Court. Court was not running the factory
and doing business. CBL or CBIPL was not an agent of the Court. Profits and losses
are inherent in any business and it is not the obligation of the Court to reimburse the
losses suffered by them while they were carrying on business. In case the contention
of CBL or CBIPL is to be accepted, then if profits were earned, CBL/CBIL was liable
to account for the same. Obviously such a contention cannot be accepted and,
therefore, conversely also the plea and claim of CBL or CBIPL has to be rejected.
21. There are two contentious issues. First is the issue with C.P.No.204/2003 Page 12
regard to lines 5 and 6 along with some other equipments which were dismantled and
taken away to CBL factory in Sri Lanka. This was done with the permission of the
High Court which order was confirmed by the Supreme Court. The question is what
order or direction should be passed in respect of the lines 5 and 6 and other
equipment taken to Sri Lanka. The second issue is whether CBL is entitled to interest,
if so, at what rate.
22. With regard to first aspect, the Court had appointed ITCOT, Chennai, as expert
valuers to visit the factory at Patiala and also visit the factory of CBL in Sri Lanka.
They were asked to value the factory at Patiala and value lines 5 and 6 and other
equipment dismantled from Patiala and installed by CBL in Sri Lanka. As per the
report dated February, 2009, the total value of the plant and equipment, including
lines 5 and 6 which were shifted and reassembled in Sri Lanka as on 23rd February,
2009 has been estimated as Rs.354.83 lacs. Subsequently, vide order dated 3rd
October, 2008, ITCOT was asked to assess the fair market value of the said plant and
equipment, including lines 5 and 6 at Sri Lanka as in June, 2005. In the second
report they have valued the said plant and equipment at Rs.449.43 lacs. In the reply
filed by ITCOT in this Court on 5th May, 2010 to CA No. 1208/2009, the said
valuation has been justified on the ground that they have applied straightline
depreciation @ 6.66% per year for four years, which has been added to the value of
the plant and equipment as in February, 2009. Per se, this method of valuation is
defective and cannot be and should not be accepted. There are several reasons for the
same. Firstly, it presumes that the equipment was new equipment as on June, 2005
whereas in fact the entire plant and equipment as per the report itself was
manufactured and C.P.No.204/2003 Page 13 assembled in the year 1997-98. By this
method, the valuation of the plant and equipment in 1997-98 would have been
several times more by applying and adding 6.66% depreciation every year. By the
same reasoning, the actual purchase value of the equipment/plant in 1997/1998
should have been the basis for valuation. This basis has rightly not been adopted and
applied. Secondly, what was required and valued was the market value of the plant
and equipment, which were dismantled and taken to Sri Lanka. The market value
cannot be calculated by applying rate of depreciation, which can be at best a vague
estimate or gives the book value and is not an accurate estimate of the market
value/price.
23. At the same time, in rejoinder filed to CA No. 900/2008, CBL has stated that the
manufacturer of the machinery, viz., New Era Machines Private Limited has stated
that the same machinery with additional features and higher capacity would cost Rs.
3.4 Crores. It is the contention of management of BIPL that this quote of Rs. 3.4
Crores is for only one line and does not include additional features. This is disputed
by the counsel for the applicant CBL/CBIPL. Fortunately, I need not dwell further
into this aspect of valuation as CBL/CBIPL has agreed and even the management of
BIPL has agreed to the following:
(i) The entire plant and equipment, including lines 5 and 6, which
were dismantled from the property will be brought back to the
property and re-assembled and made operational by CBL at their cost
and expense.
(ii)
After
re-assembling,
an
C.P.No.204/2003
Page 14
inspection will be carried out, by a court appointed expert in the

presence of representatives of the management of BIPL. Management
of BIPL is insisting that New Era Machines Private Limited should
carry out the said inspection, especially inspection of the oven. The
applicant-CBL has some reservations. The expert, who has to carry out
inspection, is for the time being left open. However, the purpose and
objective of the expert inspection is to ensure that the equipment,
including lines 5 and 6 have been properly installed and are in good
working condition.
(iii) Till the plant and equipment, including lines 5 and 6 are properly
installed and certified, Rs. 4 Crores will remain with the Court and will
be kept in an FDR. The said amount will be refunded to CBL1 after the
expert has certified that the plant and equipment, including lines 5
and 6 have been installed and are operational.
24. The next question relates to refund of balance Rs. 8.5 Crores and whether or not
the applicant-CBL is entitled to interest on the amount deposited.
25. Regarding refund of Rs. 8.5 Crores there cannot be any doubt and dispute that
the amount has to be refunded as the auction has been set aside. The main issue and
contention raised Corrected vide order dt. 28.1.2011 C.P.No.204/2003 Page 15 by the
management of BIPL is that CBL is not entitled to any interest on the amounts
deposited by them in two installments of Rs. 25 lacs on 23rd March, 2004 and
Rs.12.25 Crores on 13th August, 2004 (Total Rs. 12.5 Crores).
26. Learned counsel for the management of BIPL has relied upon the judgment of the
Supreme Court in the case of Allahabad Bank Vs. Bengal Papers Mills (2004) 8 SCC
236. The relevant portion is reproduced below:"10. The Official Liquidator, in winding-up proceedings by court, has
the power to sell the immovable properties of the company wound up,
under Section 457(1)(c) of the Companies Act, 1956. Rule 272 of the
Companies (Court) Rules, 1959 provides that an Official Liquidator
can sell the property belonging to the company only with the previous
sanction of the court and that every sale shall be subject to
confirmation by the court. Rule 273 lays down the procedure for sale
and Rule 274 deals with the meeting of the expenses of the sale. Order
21 Rule 93 of the Code of Civil Procedure (for short "the Code")
provides that where a sale of immovable property is set aside under
Rule 92 of Order 21, the purchaser shall be entitled to an order for
repayment of his purchase money with or without interest as the court
may direct, against any person to whom it has been paid. It has been
held that even though Order 21 Rule 93 of the Code may not ipso facto
apply to a sale otherwise other than under the Code, the principle
embodied therein can be applied to other sales to order refund of the
purchase price with interest while setting aside a sale.
But it has to be seen that Rule 93 of Order 21 of the Code gives a discretion to the
court setting aside a sale, either to award interest or not to award interest.
Considered in the context of that discretion, it is clear from the judgment rendered by
this Court that this Court refused to direct the payment of interest to the applicant
even while directing the refund of the purchase price paid by the C.P.No.204/2003
Page 16 applicant to the Official Liquidator. In such a situation it is not possible to
accede to the prayer of the applicant to order the payment of interest on the purchase
price paid by it, based on the principle embodied in Order 21 Rule 93 of the Code on
10
this application for a clarification of the judgment. In the circumstances of the

present applications, we have to proceed on the basis that this Court has exercised its
discretion not to award interest on the purchase price in the light of the directions
issued by it in that behalf.
11. Learned counsel for the applicant relied on the decision in Motors & Investment
Ltd. v. New Bank of India and submitted that in that case the Court ordered payment
of interest to the purchaser on the sale being set aside. On an examination of para 6
of the said decision, it is seen that the question was not discussed as such. But the
Court did order the interest earned by the purchase price to be refunded to the
purchaser or in the alternative to pay interest on the amount at 18 per cent per
annum. In the case of Central Bank of India v. Ravindra this Court discussed the
concept of interest to point out that it was the payment fixed by agreement or allowed
by law for use or detention of money. In other words, what was indicated was that
interest was really compensation for the use of the money which the purchaser was
deprived of. Going by the principle of compensation indicated in the said judgment,
the question would arise whether the applicant, in the circumstances of this case,
when it had enjoyed the assets for about ten years on deposit of the purchase price,
would be entitled to any compensation at all, or to compensation with an obligation
to account for the profits, an issue, that has to be adjudicated in an appropriate
manner and not certainly while considering an application for clarification. We find
that the obtaining of possession by the purchaser on deposit of the purchase price has
considerable relevance in deciding whether the purchaser would be entitled to
interest on the purchase price as indicated by the decision of this Court in Union
Bank of India v. Official Liquidator H.C. of Calcutta. Therein, after referring to the
decision in Motors & Investment Ltd. v. New Bank of India relied on by counsel for
the applicant and the direction for payment of interest made therein, this Court
declined the award of interest on the distinction that, in that case, possession had
passed to the C.P.No.204/2003 Page 17 purchaser. The Court stated that the
judgment in Motors & Investment Ltd. v. New Bank of India had no bearing mainly
because as soon as the amount was deposited by the purchaser, possession of the
property was handed over to him. No doubt the learned Judges thereafter, also
referred to the decision in the present case and the nonaward of interest therein. But, in our view, that makes no difference, since the
distinguishing feature relied on by the said decision, was the non-passing of
possession to the purchaser. In this case, as we have noticed, the applicant, the
purchaser, obtained possession even before he had paid the entire purchase price and
had paid only 25 per cent or so of the purchase price and kept that possession for 10
years.
12. Even on the principle of restitution, the claim of the applicant may not succeed.
This is not a case where the applicant was deprived of both his money and the
property purchased by him. There was, therefore, no failure of consideration. By the
11
subsequent order of court, the sale was set aside; but during the interregnum, the
applicant had the benefit of the assets he had purchased. The other contracting party,
the Company in liquidation, was deprived of the use of its assets. The creditors who
held the properties as security were deprived of their right to deal with the security or
to enjoy the benefits of the security during the interregnum. In fact, the securities
available to the creditors were utilised by the auction-purchaser, the applicant. In
that situation, the applicant might have the obligation to account for the profits.
Certainly, while rendering the main judgment, this Court was conscious of all these
aspects while ordering refund only of the purchase price deposited without providing
for payment of interest to the purchaser but at the same time leaving it open to the
purchaser to work out its claim for the expenses incurred by it before the Company
Court.
13. As stated in Goff and Jones: The Law of Restitution (6th Edn.) the law of
restitution is the law relating to all claims, quasicontractual or otherwise, which are founded upon the principle of unjust enrichment.
It will, therefore, be necessary to investigate that aspect even if we invoke Sections 70
and 72 of the Contract Act. Even if we invoke Section 65 of the Contract Act, the
advantages derived by C.P.No.204/2003 Page 18 each of the parties will have to be
determined and quantified in terms of money and any order in favour of the
applicant can be made only after undertaking that exercise. This result cannot be
achieved by seeking a clarification of the judgment as now done.
14. It also appears to us that there was a change of position of the parties including
the creditors, pursuant to the sale and the applicant being put in possession. In that
context, the adequacy of consideration paid by the applicant will be a relevant
consideration. As observed in Goff and Jones in para 42-004, "neither common law
nor equity normally inquires into the adequacy of the consideration which the
purchaser provides. But such an enquiry would be central to any defence solely based
on a defence of change of position, for, it is a defence which operates to discharge,
wholly or in part, a defendants duty to make restitution."
Be it noted that the sale in favour of the applicant was set aside by this Court mainly
on the ground that the consideration paid was grossly inadequate."
27. Paragraphs 12 to 14 of the said decision deal with the principle of restitution and
it was observed in the said case that the applicants claim on the said ground was not
entitled to succeed in the said case.
28. Law of restitution was initially recognized as based upon quasi contract or
implied contract theory. It was founded on the principal that the recipient must
account for money had and received and for money paid or from quantum meruit
and quantum valebant claims i.e. all claims for recovery of reasonable remuneration
12
for services rendered or for goods supplied. However, since 1990s, the principle of
restitution has been recognized as an independent legal principle, not dependent on
C.P.No.204/2003 Page 19 quasi contract or implied contract theory. Emphasis has
shifted to restoration of benefits on the ground of unjust enrichment at the claimants
expense. This has broadened and widened the concept of restitution and the said
doctrine has been applied to a variety of claims. This is noted in paragraph 13 of the
judgment of the Supreme Court in Allahabad Bank (supra).
29. In Halsburys Law of England (4th edition vol. 40(1) at page 8 in paragraph 10), it
has been observed that generally there are 4 stages to a restitutionary claim; (i) The
recipient/defendant must have been enriched (ii) Enrichment must have been at the
expense of the claimant (iii) Enrichment must not have been "unjust" (iv)
Consideration must be given to defenses applicable, if any. Sometimes, a 5th stage is
added, namely, remedy available to the claimants.
30. For a restitutionary claim, normally the defendant should have been enriched as a
result of something, which the claimant has done for or given to the defendant.
Absence of enrichment is fatal to the existence of restitutionary claim. Yes, there can
be cases where there is loss to the claimant but no corresponding gain to the
defendant. In such cases, restitution is used to denote the restitution of the claimant
to the previous position by making good the loss which he has suffered.
31. Unjust enrichment can be positive i.e. when a person receives goods or money or
negative i.e. because of savings incurred. Enrichment takes place when a claim
against a defendant is discharged by the payment made by the claimant. Indirect
enrichment in this manner falls within the term "enrichment" as the defendant is
enriched at the claimants C.P.No.204/2003 Page 20 expenses. The loss to the
claimant as a result of payment is matched with the benefit/gain to the defendant.
The terms unjust is flexible but broadly means and implies that there is an objection
and it would be unfair and result in injustice, if the defendant is allowed to retain the
benefit without compensating the claimant. Mistake of fact, mistake of law, duress,
undue influence, failure of consideration, discharge of debt etc., have been recognized
as factors, which can render enrichment unjust. The defenses available to the
defendant include estoppel, bonafide purchase for value, passing on, illegality or
incapacity. Defense of change in position is also available but this is examined on a
case to case basis. Generally, mere fact that the defendant has spent money, does not
make it inequitable to deny restitution. The defendant has to establish causal link
between the receipt of money and change in position, which makes it inequitable for
the recipient/defendant to make restitution.
32. However, I need not go deeper into this aspect as CBL has not relied solely upon
the principle of restitution. Learned counsel for the CBL has in fact relied upon the
Order 21 Rule 93 of the Code of Civil Procedure, 1908 (Code, for short), which
provides that where sale of immoveable property is set aside, the purchaser will be
13
entitled to refund of purchase money with or without interest as the court may direct,
against any person to whom it has been paid. In paragraph 10 of the judgment in
Allahabad Bank (Supra), it has been held that principles embodied in Order 21 Rule
93 can be applied to other sales to order refund of the purchase money with or
without interest while setting aside a sale. The Court has discretion to award interest
while directing C.P.No.204/2003 Page 21 refund of purchase money, when a sale
made by the Court is set aside and the purchaser is to be refunded the money
deposited by him. Reference can also be made to Section 144 of the Code which
reads:"144. Application for restitution.--(1) Where and insofar as a decree
[or an order] is [varied or reversed in any appeal, revision or other
proceeding or is set aside or modified in any suit instituted for the
purpose, the Court which passed the decree or order] shall, on the
application of any party entitled to any benefit by way of restitution or
otherwise, cause such restitution to be made as will, so far as may be,
place the parties in the position which they would have occupied but
for such decree [or order] or [such part thereof as has been varied,
reversed, set aside or modified]; and, for this purpose, the Court may
make any orders, including orders for the refund of costs and for the
payment of interest, damages, compensation and mesne profits, which
are properly [consequential on such variation, reversal, setting aside
or modification of the decree or order].
[Explanation.--For the purposes of sub- section (1), the expression
"Court which passed the decree or order" shall be deemed to include,-(a) where the decree or order has been varied or reversed in exercise of
appellate or revisional jurisdiction, the Court of first instance;
(b) where the decree or order has been set aside by a separate suit, the
Court of first instance which passed such decree or order;
(c) where the Court of first instance has ceased to exist or has ceased
to have jurisdiction to execute it, the Court which, if the suit wherein
the decree or order was passed were instituted at the time of making
the application for restitution under this C.P.No.204/2003 Page 22
section, would have jurisdiction to try such suit.] (2) No suit shall be
instituted for the purpose of obtaining any restitution or other relief
which could be obtained by application under sub-section (1)"
33. Learned counsel appearing for BIPL has submitted that if possession of the
property is given to the auction purchaser, he is not entitled to any interest when
subsequently the auction sale is set aside. Secondly, it is submitted that the auction
14
purchaser was/is always aware and conscious of the fact that the auction
sale/confirmation of sale can be challenged in appellate proceedings. Therefore
interest shall not be paid. The third contention raised by the management of BIPL
relates to adequacy of the sale consideration paid by the auction purchaser. In this
connection, my attention was drawn to the paragraph 14 of the judgment in the case
of Allahabad Bank (Supra), wherein paragraph 42-004 from Goff and Jones: The
Law of Restitution, has been quoted.
34. The third contention of the counsel for the management of BIPL will be discussed
in the subsequent portion of this order.
35. It is not possible to accept as an ominous universal rule that whenever possession
of the property is given to the auction purchaser, he is not entitled to interest, if the
sale is subsequently set aside as auction purchaser is always aware and conscious of
the fact that the auction can be challenged in appellate proceedings. There are good
reasons for the same. Court auctions do not normally fetch market value for a variety
of reasons including uncertainty, delay and further litigation. If this
C.P.No.204/2003 Page 23 argument on behalf of Management of BIPL is to be
accepted and given judicial recognition, it will have a further negative impact and
depress court auction/bids. This will not be in the interest of the judgment debtors or
the creditors as attempt of the Court is to fetch and get best possible price. This is not
be possible if bidders are not be paid interest even if the sale/auction is set aside.
After all no auction purchaser will like that his money to be stuck, pending
appeal/challenge with a stipulation that if the bid/auction/sale is set aside, he will be
refunded money without interest. Even if possession is given, optimum and full use
of the property is invariably denied and/or not possible.
36. It is also not possible to accept the contention of the management of the BIPL
that in the case of Allahabad Bank (Supra) it has been held by the Supreme Court that
whenever possession of a property is given to the auction purchaser, no interest is
payable. In the case of Allahabad Bank (Supra), the Supreme Court has not laid down
any such ratio. The facts of the Allahabad Bank (Supra) leading to the decision dated
7th October, 2004 may be noticed. In the said case by judgment in appeal decided on
20th April, 1999, the auction purchaser was directed to be refunded the bid amount
of Rs. 2 Crores as the auction sale was set aside. There was no direction to pay
interest. The Official Liquidator refused to pay any interest. The applicant- auction
purchaser thereupon filed an application before the Supreme Court seeking
clarification of the judgment dated 20th April, 1999 and for direction that the
applicant was entitled to interest accrued on the purchase price of Rs.2 Crores. The
application was opposed by the creditors. Noticing the facts in C.P.No.204/2003
Page 24 paragraph 12 of the judgment, the Supreme Court has observed that in the
facts of the said case, the Court had exercised their discretion not to award interest,
when the judgment dated 20th April, 1999 was passed, setting aside the sale. In
paragraph 10 of the said judgment, it is clearly observed that whether or not interest
15
should be paid to the auction purchaser on the money deposited by him if the sale is
set aside, is a matter of discretion. Thus, it is not held in paragraph 10 that interest
cannot be paid to the auction purchaser if the sale is set aside. In paragraph 11 of the
judgment, the Supreme Court has referred to decision in the case of Motors &
Investment Ltd. Vs. New Bank of India (1997) 11 SCC 271. In the said case the
Supreme Court had ordered refund of purchase price along interest @ 18% per
annum. However, it was observed that there is no discussion on the said aspect in the
said decision. In the case of Central bank of India Vs. Ravindra (2002) 1 SCC 367, the
Supreme Court discussed the concept and principle behind award of "interest" and
has held that interest is compensation for the use of the money which a person is
deprived of. Reference thereafter was made to the decision of the Supreme Court in
the case of Union Bank of India Vs. Official Liquidator H.C. of Calcutta (2000) 5 SCC
274, wherein the Court had exercised its discretion and declined to award interest as
in that case possession of the property was given to the auction purchaser. It was
noticed that in the case of Motors & Investment (Supra), possession of the property
was not given to the purchaser. In the case of Allahabad Bank (Supra) the applicant
auction purchaser had obtained possession even before he had paid the entire
purchase price and possession was given when he had paid only 25% or so
C.P.No.204/2003 Page 25 of the purchase price and had retained possession for 10
years. The other aspect, which was noticed by the Supreme Court in the case of
Allahabad Bank (Supra) was regarding inadequacy of sale consideration. What is
apparent from the decision of the Supreme Court in Allahabad Bank (Supra) is that
these aspects have to be kept in mind while deciding whether or not to award interest
to the auction purchaser and while exercising discretion in terms of the Order 21 Rule
93 of the Code. It may be appropriate here to refer to Goff & Jones, The Law of
Restitution, which has a separate chapter dealing with recovery of benefits conferred
under judgments or orders subsequently reversed or set aside. In the said chapter
reference is made to decision in the case of Manning (1609) 8 Co.Rep 94b, which
reads as under:"If the sale of the terms should be avoided, the vendee would lose his
term, and his money, too, and thereupon great inconvenience would
follow, that none would buy of the sheriff goods or chattels in such
cases, and so execution of judgments......would not be done."
37. This reasoning was followed in Mani Lal Vs. Ganga Prasad AIR 1951 Allahabad
832 and the following observation was made:"5. In Bacon's Abridgement, it was laid down, citing still older
authorities, that :
"If a man recovers damages and lath executed by fieri facias and upon the fieri facias
the sheriff sells to a stranger a term for years, and after the judgment is reversed the
party shall be restored only to the money for which the term was sold, and not to the
16
term itself, C.P.No.204/2003 Page 26 because the sheriff had sold it by the command
in the writ of fieri facias."
This principle was upheld in England in numerous cases vide Mathew Manning's
case (1609) 8 Co. Rep. 94b, Bennet v. Hamill (1806) 2 Sch. & Lef. 566 at p. 577,
Bowen v.
Evans, (1844) 1 Jo. & Lat. 178 at p. 259. The principle was applied by the Privy
Council to Indian cases in Zain-ul-Abdin Khan v.
Muhammad Asghar Ali Khan 10 ALL. 166. The Privy Council after quoting from
Bacon's Abridgement observed that bona fide purchasers who were no parties to the
decree had nothing to do further than to look to the decree and to the order of sale.
Their Lordships pointed out the distinction between a case in which the decree
holder was the auction purchaser, who was not protected when the decree was set
aside or modified, and the case of a stranger auction-purchaser. If the stranger
auction-purchaser was a bona fide purchaser, he was entitled to be protected. This
decision of the Privy Council has been followed in several cases in India, vide Piari
Lal v. Hanif-un-nissa Bibi 38 ALL. 240, Balwant Singh v. Mt. Laiqa Begam
MANU/UP/0489/1923."
38. This brings us to the facts of the present case and to the question whether or not
discretion should be exercised to pay interest on the amount deposited by the auction
purchaser, if so, at what rate.
39. Learned counsel for the management of BIPL has stated that the present case is
one of inadequacy of consideration and this is the reason why the Supreme Court had
set aside the sale in the judgment dated 16th May, 2008 reported as 2008 (15) SCC 1
C.P.No.204/2003 Page 27 Reference in this regard is specifically made to the
paragraphs 78 and 79 of the said decision.
40. In paragraph 78 of the said decision, the Supreme Court has held that the
company i.e., management of the BIPL had committed wrongs and, therefore, its
property had been sold in the auction and even part of the property was taken out of
the country. CBL/CBIPL had employed a large number of workmen and had started
operating factory and, therefore, the relief, which could be granted in the appeal, was
an intricate question. At the same time Supreme Court noticed that there was anxiety
on the part of the Court not to accept the sale in favour of CBL looking at the claims
of the secured creditors, other creditors and workmen. Directions were issued in
paragraph 79 including the discretion of the company court to put the property for
fresh auction after appropriate valuation of the assets. I do not find anywhere in the
judgment there is a specific or direct finding that CBL is involved in any fraud or had
purchased the property for inadequate consideration. It may be relevant to note here
that in paragraph 79 of the judgment, the Supreme Court has stated that the
17
company Judge may consider the question for grant of some preference to CBL and
had allowed CBL to continue to function as a Receiver. If CBL was guilty of fraud or
was a purchaser for inadequate sale consideration, these observations and grant
concession to CBL/CBIPL would not arise.
41. Learned counsel for the BIPL2 has relied upon a hand written note/document
and emphasized that CBL was negotiating with the management of BIPL before they
had participated in the auction and given their bid. My attention was drawn to the
fact Corrected vide order dt. 28.1.2011 C.P.No.204/2003 Page 28 that CBL had filed
an application before the civil/execution court on or about 15th March, 2004. It was
stated that this note/document was filed before the Supreme Court and this
note/document shows that consideration/bid offered by CBL was inadequate and
was much less than CBLs own valuation. The Supreme Court has not referred to this
note/document. It is noticed that several cuttings and remarks on the
note/document, have not been indicated in the true typed version. It is noticed that
what was auctioned, was the tangible property and not the intellectual property rights
in the brand or trade name. Subsequently, the brand and trade name of BIPL were
valued by a Chartered Accountant appointed by the Court. The same were valued at
Rs. 35.88 Crores. Learned counsel for the CBL has pointed out that bids were made
by the ITC, Britania and a company from Saudi Arabia. He submits that there was no
possibility of the bidders forming a cartel and deliberately bringing down the auction
price. Management of the BIPL was given several and repeated opportunities to get a
better offer/bid. I need not go into this question in detail as there is no specific or
direct finding regarding under valuation or fraud by CBL. I have quoted the reasons
given by the Supreme Court for setting aside the sale in the present case. It is noticed
that the Supreme Court has also adversely commented about the conduct of the
management of BIPL in their decision dated 16th May, 2008.
42. In the present case, possession of the property was handed over to CBL on 3rd
March, 20053 after they had deposited the entire sale consideration on 13th August,
2004. It has also come on record that CBL had stopped production and
manufacturing in Corrected vide order dt. 28.1.2011 C.P.No.204/2003 Page 29 the
property after the order of the Supreme Court on 15th September, 2008. CBL,
however, has not placed on record the date when they have started production or trial
production. The property was sealed and possession was taken by SICOM on 18th
July, 2003. Thus, for nearly two years the factory was closed and was not functioning.
There was no maintenance and the plant and equipment was not operational. The
CBL has incurred expenditure to re-start the factory and make it operational. The
report given by Vaish and Associates, Chartered Accountants has confirmed that
expenditure was incurred by CBL/CBIPL to re- start and making the factory
operational. It is stated by CBL/CBIPL that even after manufacturing was stopped on
15th September, 2008, they have been keeping the machinery oiled and in
operational state. They are bound and shall abide by the said statement.
18
43. Rs. 12.5 Crores was deposited by CBL with SICOM. Out of this amount, Rs. 8
Crores was appropriated subject to right of restitution by SICOM, IDBI and IFCI in
terms of the order dated 3rd May, 2006. Prior to the said date, the amount deposited
was kept in an FDR. Rs. 4.5 Crores, which has not been appropriated, has been kept
in an FDR. Rs. 4.5 Crores was not directed to be appropriated as this was meant for
distribution amongst the workmen. Rs. 8 Crores once appropriated by the SICOM,
IDBI and IFCI reduced the liability of BIPL to this extent towards interest. BIPL or
management of BIPL, therefore, gets advantage of the said appropriation from the
date the amount was appropriated till repayment is made. The rate of interest
charged by the financial institutions, it is stated is about 18%. BIPL or management
of BIPL, gets benefit/advantage of this C.P.No.204/2003 Page 30
deposit/appropriation by the financial institutions the extent of Rs.8 Crores. At the
same time CBL/CBIPL has used and utilized the plant and equipment in the factory
and has used the property during the period from 3rd March, 2005 till 15th
September, 2008. CBL/CBPIL has used the plant and equipment, which has
depreciated and come down in value. ITCOT has stated that plant/equipment at Sri
Lanka is old but in good condition. They must account for and pay and this aspect
has to be kept in mind while deciding the question of rate of interest. These factors
cannot be ignored. Rate of rent/mesne profits with reference/in ratio to capital value
of a property in India is low. Rate of annual return in terms of mesne profit/rent is
normally less than 5% of the capital market value. CBL had taken over the factory for
manufacturing and sale of biscuits. A business like this has a gestation period and
only after sometime it starts giving returns. As noticed above, the possession of the
property remained with CBL for a period of three and a half years from March, 2005
till they stopped manufacturing activities on 15th September, 2008. The reason given
by CBL/CBIPL why they had to stop manufacturing is that they were not able to get
and procure funds for running the factory. The report of Vaish and Associates,
Chartered Accountants shows that funds were transferred to CBL/CBIPL in India for
startup, operation, maintenance, running costs, watch and ward expenses etc. The
property was dead capital investment for CBL from 13the August, 2004 till 3rd
March, 2005, when possession was given and then again from 15th September, 2008
when the operations were shut down. Thus, out of the period of more than six years,
between 13th August, 2004 till today, the factory has been in operation for three
years and six C.P.No.204/2003 Page 31 months (except equipment/plant in Sri
Lanka).
44. Keeping in view all these aspects in mind and balancing out equities, I feel that
CBL should be given interest @ 5% on the entire Rs. 12.5 Crores from the date of
payment till 10th January, 2011. SICOM had initially deposited the entire sale
consideration into an FDR and even now Rs. 4.5 Crores is lying deposited in FDRs.
BIPL or management of BIPL will get advantage of the amount of Rs. 8 Crores, which
was appropriated by SICOM, IDBI and IFCI from the date of appropriation. BIPL or
management of BIPL will not be liable to pay interest to the said financial institutions
@ 18% during the time when this amount was appropriated. Of course after the
19
financial institutions make payment of Rs. 8 Crores, the BIPL or management of

BIPL will be liable to pay the rate of interest chargeable as per law to the financial
institutions. This means that the BIPL or management of BIPL will get benefit to the
extent of nearly 13% on Rs. 8 Crores, which has been appropriated by the financial
institutions. (18% less 5% interest awarded to CBL. BIPL or its Management will be
liable to pay 5% interest to the financial institutions on Rs. 8 Crores.) Difference
between the interest earned on FDRs of Rs. 12.5 Crores and Rs. 4.5 Crores and 5%
interest now awarded to CBL will also enure to the benefit of BIPL/Management of
BIPL. Thus the effective rate of return towards mesne profit/depreciation for
BIPL/Management of BIPL will be about 9% on Rs. 12.50 crores/bid value. It is made
clear that CBL will not be entitled to any further charges/expenses on account of
maintenance, keeping up etc. or for re-starting the factory and making it operational.
The interest figure will include all expenses payable to them for upkeep,
maintenance, watch and ward etc. C.P.No.204/2003 Page 32
45. Rs. 8.5 Crores will be refunded by the financial institutions on or before 10th
January, 2011 to CBL. The CBL will re-install the Lines 5 and 6 and other
equipments, which were taken away to Sri Lanka, within a period of four months. The
interest amount and Rs.4 Crores will be paid to CBL after Lines 5 and 6 and other
equipments are re-installed and the expert appointed by the Court has certified that
the Lines 5 and 6 and other equipments, are in operational condition/state. Till then
the CBL will continue to act as a Receiver and maintain the plant and machinery and
keep them in operational state but not use them.
46. It is clarified that CBL will continue to be a Receiver till further orders and the
possession of the plant and equipment as well as factory belonging to BIPL is with the
Court and not with CBL. CBL/CBIPL will be liable to pay the statutory dues and
liabilities for the period till the factory was in operation i.e. till 15th September, 2008
and workmens due till they vacate. Payment of Rs. 4 crores and the interest will be
released only after the Court is satisfied that the statutory dues and liabilities and
workmens dues have been paid. Rs. 11.20 lakhs on account of missing plant and
equipment will be deducted while making payment of Rs. 8.5 crores4 and no interest
will be payable for the same.
47. The last question is whether management of BIPL should be allowed to inspect
the premises and whether the matter should be adjourned to enable the management
of the BIPL to submit a scheme for rehabilitation and payment to the creditors. As far
as inspection of the property is concerned, I think the same should be allowed. I
reject the opposition by CBL/CBIPL that inspection by management of BIPL would
result in infringement of their Corrected vide order dated 28.1.2011
C.P.No.204/2003 Page 33 intellectual property right as they have installed
specialized equipments. It will be open to CBL or CBIPL to remove the said
equipment within a period of three weeks from today. CBL/CBIPL will inform the
Official Liquidator at least 5 days in advance as to the date on which they want to
20
remove their equipment. Equipment will be removed in the presence of the Official
Liquidator or his representatives. It will be open to the Official Liquidator to ask
ITCOT or their representative to be present at that time. Immediately after removal
of the equipment, management of BIPL will be given notice by CBL/CBIPL to inspect
the property. Even if the said equipment is not removed within three weeks,
inspection will be permitted and allowed to the management of the BIPL after three
weeks.
48. In the present case SICOM took possession of the factory on 18th March, 2003. It
has been almost 7 years since then. Order sheet reveals that management of BIPL was
given several opportunities to give proposal/scheme or get a higher bidder or
purchaser. Management of BIPL has failed to get hold of any bidder or furnish any
proposal/scheme, though opportunities were granted. I do not agree with the counsel
for the management of the BIPL that there were unable to give any proposal as
inspection of the property has not been allowed. This is an excuse, which cannot be
accepted. Management of the BIPL has not furnished name or details of any proposal
given to them by a third party. Management of BIPL themselves are not in a position
to propound a scheme for payment of the dues and for re-starting the business. It is
noticed that in 2004, the same management as per their own case, had got in touch
with CBL when the factory was lying closed and sealed. The fact that CBL was not
permitted C.P.No.204/2003 Page 34 inspection of the factory, did not debar or
prevent management of BIPL from negotiating with the CBL.
49. The Official Liquidator was appointed as a provisional liquidator on 6th April,
2004. At this stage, we have to keep in mind interest of the creditors and workmen.
Interest of the promoters or members/management of the company is relevant but
not as important as interest of creditors and workmen. We have to also keep in mind
the fact that 7 years have lapsed and unless immediate steps are taken, the value of
the plant and equipments will depreciate. Supreme Court in the judgment dated 16th
May, 2008 has quoted the following passage from Farars Company Law:"74. ......We may notice the observations made by the learned author:
"As we have seen, Directors do not owe duties to shareholders as such.
Neither do they owe duties to the companys creditors. The orthodox
position being as stated by Dillon, L.J.
in Multinational Gas and Petrochemical Co. v. Multinational Gas &
Petrochemical Services Ltd. Directors owe fiduciary duties to the
company though not to the creditors, present or future, or individual
shareholders.
Winkworth v. Edward Baron Development Co. Ltd., a House of Lords
decision, might suggest that there has been a change to that position
21
with Lord Templeman stating:

... a company ownes a duty to its creditors, present and future. The
company owes a duty to its creditors to keep its property inviolate and
available for repayment of its debts.
C.P.No.204/2003 Page 35 The conscience of the company, as well as
its management, is confided to its Directors. A duty is owed by the
Directors to the company and to the creditors of the company to
ensure that the affairs of the company are properly administered and
that its property is not dissipated or exploited for the benefit of the
Directors themselves to the prejudice of the creditors. "
The learned author furthermore observed:
"Support here for this approach can be found in West Mercia
Safetywear Ltd. v. Dodd where Dillon, L.J. approved the following
statement of the position by the New South Wales Court of Appeal in
Kinsela v. Russell Kinsela Pty Ltd.:
In a solvent company the proprietary interests of the shareholders
entitle them as a general body to be regarded as the company when
questions of the duty of Directors arise. If as a general body, they
authorise or ratify a particular action of the Director, there can be no
challenge to the validity of what the Directors have done. But where a
company is insolvent, the interests of the creditors intrude. They
become prospectively entitled through the mechanism of liquidation,
to displace the power of the shareholders and Directors to deal with
the companys assets. It is in a practical sense their assets and not the
shareholders assets that through the medium of the company are
under the management of the Directors pending either liquidation,
return to solvency, or the C.P.No.204/2003 Page 36 imposition of
some alternative administration. "
50. At the same time, issue of fresh sale proclamation on the basis of the valuation
report submitted by ITCOT is likely to take time. It will be open to the management
of BIPL5 to negotiate and submit a proposal/scheme from a third party in the
integram. I am not inclined to adjourn the matter to enable the management of BIPL
to find a third party and file an application propounding a scheme as this would
cause delay. It will be open to the management or any third party associated with
them to participate in the auction/bidding process. The primary concern of the
company court at this stage as stated above is twofold; (i) to secure and ensure
payment to the creditors on best possible terms and (ii) to get a fair deal for the
workers both with regard to the past arrears and future employment. These aspects
22
cannot be left to the management of the BIPL6 alone. Attempts have to be made to
get a best possible deal by tapping all sources and parties, who are interested.
C.A.Nos.900/2008 filed by CBL, 1767/2010, filed by the management of the BIPL7 and 495/2010,
filed by the Official Liquidator are accordingly disposed of.
SANJIV KHANNA, J.
DECEMBER 20, 2010 VKR/NA /P/VJ/PR Corrected vide order dated 28.1.2011 Corrected vide
order dated 28.1.2011 Corrected vide order dated 28.1.2011 C.P.No.204/2003 Page 37
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M-S New Cawnpore Flour Mills Vs M-S Bakemans Industries PVT LTD On 20 December, 2010

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M-S New Cawnpore Flour Mills Vs M-S Bakemans Industries PVT LTD On 20 December, 2010

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M/S New Cawnpore Flour Mills vs M/S Bakemans Industries Pvt Ltd on 20 December, 2010

Delhi High Court

Mr. C.A. Sundram, Sr. Advocate with Mr. P.C.

CA No. 900/2008 (filed by Ceylon Biscuits

Indian Kanoon - http://indiankanoon.org/doc/33293834/

Official Liquidator brought to the courts notice claims of other

Company Court, in exercise of its equity jurisdiction could not have

Indian Kanoon - http://indiankanoon.org/doc/33293834/

Indian Kanoon - http://indiankanoon.org/doc/33293834/

that CBL had transferred Rs.10,02,344/- to third parties for operations/startup

inspection will be carried out, by a court appointed expert in the

this application for a clarification of the judgment. In the circumstances of the

Indian Kanoon - http://indiankanoon.org/doc/33293834/

financial institutions make payment of Rs. 8 Crores, the BIPL or management of

with Lord Templeman stating:

Indian Kanoon - http://indiankanoon.org/doc/33293834/

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