Pratibha Upasani, Chairperson
1. This Misc. Appeal is filed by the appellants ICICI Bank Limited being aggrieved by the order dated 23.7.2002 passed by the learned Presiding Officer of Debts Recovery Tribunal III, Mumbai on Exhibit 17 in the Original Application No. 162 of 2002. By the impugned order, the learned Presiding officer rejected the application made by the applicant Bank wherein two fold prayers were made. The first prayer was for giving direction to the receiver who has been already appointed by the DRT to sell property mentioned in Exhibits A, B and C to the original application by public auction, by private treaty or otherwise and the second prayer in the alternative, was that the order dated 9.5.2002 passed by the DRT-III, Mumbai, directing payment of royalty of Rs. 10 lacs after every quarter be modified and royalty amount be enhanced to Rs. 15 crores per month. The learned Presiding Officer, however, by the impugned order, rejected both the prayers.
2. Few facts which are required to be stated are as follows:
The original application came to be filed by the appellants herein against M/s Daewoo Motors (India) Limited/the respon-dent No. 1 herein, for recovery of the huge amount due and payable by the respondent No. 1. The respondent No. 2 is Daewoo Corporation, a company organised and having registered office in Korea. The respondent No. 2 had executed deeds of guarantees and guaranteed repayment of the amount, due and payable by the respondent No. 1 to the appellants. Other respondents are joined as necessary parties as they have interest in the assets of the respondent No. 1. The amount due to the appellants, is to the tune of Rs. 511 crores. Hence, the original application is filed by the appellants for recovery of the said amount and for enforcement of the securities and other reliefs as set out in the original application.
Thereafter, by way of interim reliefs, application came to be filed by the appellants, inter alia praying for appointment of receiver with respect to the properties of the respondent No. 1. The said application came to be allowed by the learned Presiding Officer of DRT III, Mumbai by his order dated 9.5.2002. Being aggrieved, the respondent No. 1 i.e. M/s. Daewoo Motors India Limited had filed appeal in this Appellate Tribunal. However, the said appeal also came to be dismissed by this Appellate Tribunal by its order dated 14.5.2002. Thus, the order of appointment of receiver came to be confirmed.
It has to be highlighted, at this stage, that when the DRT-III, Mumbai passed order appointing receiver on 9.5.2002, prayer was made by the Daewoo Motors (India) Limited, the respondent No. 1 herein, for stay of the said order and the stay was granted subject to the respondent No. 1 giving undertaking that they would not pass any resolution about going to BIFR, because strong apprehension was felt that, the entire process of appointment of receiver would be stalled by the said company by approaching BIFR. On this background, the order of appointment of receiver came to be passed. Since entire thrust of the interim application, at that stage was to somehow prevent the original defendant Daewoo Motors India Limited from approaching BIFR and to make property of the defendant/respondent No. 1 custodia legis, there was no discussion whatsoever, at that stage, about the quantum of royalty to be paid by the defendants for carrying on business as agent of the Court receiver. The learned Presiding Officer in his order dated 9.5.2002, in the operative part, directed the defendants to deposit royalty of Rs. 10 lacs after each quarter. It has to be highlighted, at this stage, that again with respect to royalty of Rs. 10 lacs to be paid after each quarter, there was no discussion whatsoever in the said order or reasoning for arriving at that particular figures as such.
Before royalty as directed came to be deposited after end of the first quarter, another interim application came to be made by the applicant Bank, wherein certain changed circumstances were narrated. It so happened that in the meantime, Parelkar and Dallas, registered Architects, Consultants, Surveyors, Registered Valuers, Mumbai were appointed by the Receiver to inspect the property of the defendant M/s. Daewoo Motors (India) Limited situated at Noida-Dadri Road, Surajpur-203207, District Gautam Budh Nagar (UP) India. The inspection was carried out jointly with representative of the applicant Bank as well as with the representative of M/s Daewoo Motors (India) Ltd. Thereafter, the said valuers submitted their detailed report, in which, facts were revealed, which were different from the facts, which were existing at the time of original application or even which were not existing at the time when the first application for interim relief, inter alia praying for appointment of Receiver was made by the applicant Bank. For example, at the time when the first application was made by the applicant, out of three units of defendant No. 1, only one unit was shut down and two units were apparently functioning. However, the inspection report revealed that out of three units of the defendant No. 1, two units were shut down, thereby causing reduction in the production of passenger cars to 5%. The report further revealed that the company was on the verge of closing down that though company at that point of time, had a capacity of manufacturing about 3 lacs numbers per annum of engines and transmission axles, 72,000 numbers per annum of passenger cars and 15,000 light commercial vehicles per annum, because there were no orders and no demand for its ‘Cielo’ and ‘Matiz’ ears and the present demand was only for 200-300 cars per mouth, which was just 5% of the total installed capacity, 95% of the plant capacity remained unutilised.
It was further revealed from the inspection report of the registered Architects and Valuers dated 25.5.2002 that since there was fall in the demand, it was difficult to sustain day-to-day establishment costs and hence, with a view to reduce establishment costs and conserve energy, management had resorted to shut down the plant, that only 6% to 7% of the work force was asked to report for duty, mainly for the Captive Power Plant, maintenance and upkeep of the equipment and machinery. The report further revealed that on 23.5.2002, there were only 22 ‘Matiz’ cars shells (bodies) in the paint shop in semi-finished condition and the raw material in the various shops and sheds were not adequate to sustain production even at Break Even Point. The report further revealed that production of commercial light vehicles had been discontinued and the shed was used for storing miscellaneous items.
It has to be highlighted at this stage that though the said report is dated 25.5.2002, no objection whatsoever on any point has been filed by the respondent No. 1 company till date.
3. Armed with this revelation in the inspection report, the applicant Bank became alarmed, as it had to recover huge amount to the tune of Rs. 511 crores from the respondent No. 1 company. It also knew that the total liability of the respondent No. 1 including liabilities, which responded No. 1 had owed to other Banks and financial institutions was to the tune of Rs. 1500 crores.
As such there was no denial of liability by the respondent No. 1. Also there was no denial of the fact that they were facing financial constraints. Its parent company in Korea was on the verge of liquidation. The applicant had learnt that General Motors on whom the respondent No. 1 company had pinned down its hopes for the purpose of restructuring its business, did not yield any results because General Motors disclosed that they were determined not to give consideration to the assets of the respondent No. 1 in India. The Chief Executive Officer of the said company had resigned and wanted to continue only in the capacity of non-Executive Director.
Thus, there are acute troubles in the parent company. The respondent No. 1 ‘s hope for restructuring its financial and business activities also came crushing down. There is a continuous liability of monthly wage-bill, which is mounting day-by-day, by allowing the respondent No. 1 company to run the plant. Losses are increasing and there is a recurring burden of interest to the financial institutions whose loans and advances are admitted and undisputed. The liability of interest owed to the lenders on a daily basis, on a conservative approach, is approximately Rs. 60 lacs, which is worked out to Rs. 18 crores a month.
Under these circumstances, the applicant Bank came out with interim application seeking permission from DRT for allowing receiver, which was already appointed to sell the assets, to satisfy the huge claim of the Bank. It was this application which came to be rejected by the learned Presiding Officer, DRT-III, Mumbai, by its impugned order dated 23.7.2002.
I have heard Mr. Sakseria for the appellants and Mr. Snehal Shah for the respondents. I have gone through the voluminous proceedings and the reasons given by the learned Presiding Officer, rejecting application made by the applicant Bank and in my opinion, considering the overall circumstances, financial crisis, which the respondent No. 1 is facing, whereby the respondent No. 1 has become totally unable to pay huge dues of the applicant Bank, so also of the other Banks and financial institutions, permission to sell assets of the respondent No. 1 company ought to have been given. In my opinion, facts of this case are squarely covered by the principle laid down by the Supreme Court in the case of I.C.I.C.I. Limited and Ors. v. Karnataka Ball Bearings Corporation Limited and Ors., VII (1999) SLT 197=IV (1999) CLT 30 (SC)=AIR 1999 Supreme Court 3438.
Issue whether Court has power to direct the receiver to effect sale of immovable property prior to passing of the decree is no more res integra. In fact the Supreme Court in the above mentioned case, has laid down that:
“The language of Order 40 being of widest possible import, any restriction as regards the power of the Court to direct a Receiver to effect a sale of immovable property prior to the decree does not and cannot arise. Order 40 Rule 1 and various sub-rules there unmistakably depict that the Court has unfettered powers in the event the Court feels, that the sale of property would be just and convenient having due regard to the situation of the matter. The Court must consider whether special interference with the possession of the defendant is required or not and in the event the Court come to such a conclusion that there is likelihood of the immovable property, in question, being dissipated or some such occurrences, or party initiating the action suffering irreparable loss, unless the Court gives appropriate protection, there should not be any hesitation in directing the sale of immovable properly.”
The Supreme Court, thus, observed that the Court may appoint Receiver not only as a matter of course but as a matter of prudence, having regard to the justice of the situation and can empower him to sell the assets before the decree is passed. The Supreme Court in fact commented on the observations made by the Bombay High Court in the case of State Bank of India v. Trade Aid Paper and Allied Products (India) Limited, I (1996) BC 309=AIR 1993 Bombay 268, that “in no case immovable properly should be sold by the Receiver before passing of the decree in favour of the Bank or financial institution.” While commenting upon Bombay Authority, the Supreme Court commented that though the Full Bench of the Bombay High Court has recorded that the Court should be conscious of present market tendencies and grant of loan by the Banks and financial institutions for the purposes of industrial growth and development in the country and should be pragmatic in exercising powers under Order 40 Rule 1 of the Code of Civil Procedure, this pragmatism has been given restrictive meaning by debarring the sale of the immovable property prior to decree in favour of the Bank.
Lastly, the Supreme Court observed in I.C.I.C.I v. Karnataka Ball Bearings; case (supra) as follows:
“In the premises, we do hereby record and observe that the question of there being any embargo in the matter of sale of immovable property by the Receiver before passing of decree does not and cannot arise and we do feel it expedient to record that the observations of the Full Bench is too wide a proposition and as a matter of fact runs counter to the true intent of the Legislature as appears from Order 40 Rule 1 of the Code of Civil Procedure……”
4. In the present case at hand, it can be seen that a situation has arisen where a huge liability is owed by the respondent No. 1, not only to the applicant Bank but also to other financial institutions. In fact, when this matter was being heard, all the respondents were served and the respondent No. 3 Industrial Development Bank of India, the respondent No. 5 State Bank of India, the respondent No. 6 Canara Bank and the respondent No. 8 State Sank of Patiala were present and they totally supported the application for sale of the assets of the respondent No. 1 made by the applicant Bank namely LC.I.C.I Bank Ltd. Other respondents were also duly served but were not present. The respondent No. 4. The Export Import Bank of India, I was told, has filed separate original application in the Debts Recovery Triburial, Delhi, which is pending. In short, there is no opposition from any of the respondents for the reliefs sought by the applicant Bank.
5. Mr. Snehal Shah appearing for the respondent No. 1 tried to argue that there is no change of circumstances, that in the earlier application same reliefs were sought, that no grievance was made with respect to the amount of royalty to be paid, etc. Mr. Shah also tried to raise issue about jurisdiction of the DRT to pass any order in the matter and locus of the applicant Bank. In my opinion, these objections are not worth considering at all. It is known that I.C.I.C.I. Ltd. and I.C.I.C.I. Bank Ltd. are merged and the formal amendment application with respect to bringing on record change in the name of the applicant is pending in the DRT.
As far as submission of Mr. Shah that when original application was made for appointment of receiver and when it came to be allowed is concerned, no grievance was made about quantum of royalty, submission of Mr. Sakseria, appearing for the applicant Bank, has to be accepted that the entire thrust, at that point of time, was to somehow prevent the respondent No. 1 company from approaching B.I.F.R. As such if one goes through the order dated 9.5.2002 passed by the learned Presiding Officer of the DRT, it will be revealed that there is no discussion whatsoever with respect to quantum of royalty and there is no denial of this fact. Direction with respect to amount of royalty was given by the Presiding Officer as Rs. 10 lacs per quarter at random, without their being any submission and discussion on that point. As such, considering the rough estimate value of the assets of the respondent No. 1 company and their business activity, the amount of Rs. 10 lacs for one quarter i.e. for three months, indeed, was a meagre amount, In their own words, rough estimate value of their assets as given by the respondent No. 1 is Rs. 3685 crores. Therefore, it was but natural for the applicant Bank to come out with second application for enhancement of the royalty amount. It was also but natural for them to come out with a prayer, which was their first prayer, about granting permission to the receiver to sell the assets of the respondent No. 1 to safeguard not only their interest but to safeguard interest of public at large as huge public money was involved, due and was payable. Dues which are payable by the respondent No. 1 company to the applicant Bank and other Banks, are to the extent of Rs. 1500 Crores but in addition, there are also dues of secured and unsecured creditors which may go well over the value of the assets of the respondent No. 1 company.
As far as enhancement of royalty amount from Rs. 10 lacs per quarter to Rs. 15 crores per month is concerned, this appears to be an impossible proposition. The respondent No. 1 company has not minced words in admitting that it is a very difficult task for them to pay even a sum of Rs. 10 lacs per quarter when they are facing financial crunch of this magnitude. Though they have deposited at least this time a sum of Rs. 10 lacs as directed, it would be obviously futile to give any direction, enhancing the quantum of royalty. They might somehow continue to pay this paltry amount, but to allow them to do that is unnecessarily to give them a long rope when the dooms-day has already come.
The grim situation therefore is that, there is a stalemate created. Huge outstanding are payable by the respondent No. 1 company, which is neck-deep in financial trouble. There are almost no hopes whatsoever indicating that they would come out of these financial crisis. The respondent No. 1’s position has become like sinking ship with no help coming from any direction. They were hoping for restructuring but that also has been dashed inasmuch as General Motors, on whom, they were pinning down their hopes, have started a plant at Gujarat with technology used by parent Daewoo company and General Motors, in no uncertain terms have written a letter to the respondent No. 1 that they are not interested in their plant and machinery. Parent company in Korea itself is on the verge of closure. What is at stake is public money. The applicant Bank so also the other Banks and financial institutions would suffer irreparable loss if the required protection is not given by the Court at this juncture. Under these circumstances, it is in the interest of all the parties and in the interest of national economy to take recourse to the salutary principles laid down by the Supreme Court in I.C.I.C.I. Ltd. v. Karnataka Ball Bearings Ltd. (supra). The plant and machinery has to be sold and dues are to be recovered.
6. This is the only practical remedy to come out of the rut and the stalemate. The past of the respondent No. 1 company was uncertain but appeared promising. The present however is dark and disappointing. And as far as its future is concerned…… it has no future at all if one takes into account the totality of circumstances. Instead of pushing the problem under the carpet, the problem needs to be taken head on and a practicable and reasonable solution is to be found out. Lest, national economy will be the first casualty. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 has been enacted by the Parliament for expeditious disposal and recovery of debts due to Banks and financial institutions. The impugned order therefore does not appear to be consistent with the said aim and object. It will have to be therefore set aside. It is desirable that entire plant and machinery should be sold as single unit but if it is not possible then the three different units will have to be sold separately; but for that purpose value of each plant and machinery has to be first ascertained. It is the contention of the respondent No. 1 company that value of their entire assets is Rs. 3685 crores; however, that will have to be ascertained and verified, and for that purpose, expert valuer has to be appointed.
In view of the above discussion, following order is passed:
Misc. Appeal No. 305 of 2002 in Original Application No. 162 of 2002 is allowed in terms of paras 6(a) and (b) except the bracketed portion in red ink in prayer Clause (b) which reads as (“and the net sale proceeds thereof be ordered to be paid to the appellants towards satisfaction of its claim in the application”).
Impugned order dated 23.7.2002 passed by the Presiding Officer of DRT III, Mumbai is hereby set aside.
In view of the above order passed by this Appellate Tribunal, following directions are given.
So far as valuation of the property mentioned in Exhibits A to C annexed to the original application is concerned, M/s. Parelkar and Dallas, registered architects and valuers are appointed as valuers to value the property of the appellants Daewoo Motors (India) Limited, which is described in Exhibits A to C annexed to the original application filed by the I.C.I.C.I. Limited.
The said valuer to visit the site and prepare valuation report of these properties within weeks. Appellant to deposit Rs. 50,000/- (Rupees fifty thousand only) with the Receiver within two weeks towards the initial expenses and fees of the valuer.
Valuer to submit report to the DRT-III, Mumbai and to seek further directions from the DRT-III, Mumbai.
The appellants are permitted to accompany prospective buyers who are interested in purchasing the property while visiting the premises after giving prior intimation to the respondent No. 1 and the Receiver.
Misc. Appeal is disposed of accordingly in the above stated terms.
At the stage, application for stay of this order is made on behalf of the respondent No. 1.
I have heard both the sides.
Stay is granted for two weeks from today.