JUDGMENT
M.S. Shah, J.
1. Aarthi Petrochemicals Industries Pvt, Ltd. has been ordered to be wound up by this Court’s order dated 16-6-1998.
2. Company Application Nos. 66, 67 and 68 of 1993 are filed by the National Labour Union representing the workers of M/s. Aarthi Petrochemicals Industries Pvt. Ltd. (hereinafter referred to as ‘the Company in liquidation’ or ‘the Company’). The workers’ case in these applications is that the Directors of the Company in liquidation were also partners in certain other partnership firms called M/s. Sukan Chemicals, M/s. Sims Laboratories, M/s. Parag Investors, M/s. Aditya Distributors, M/s. Gaurav Chemicals, M/s. Sukan Traders, M/s. Kalpana Traders, M/s. Sukan Investors, M/s. Irma Distributors and M/s. Suhan Traders and the same persons were also Directors in M/s. Parag Chemicals Pvt. Ltd. and M/s. Sukan Laboratories Pvt. Ltd., over and above the Company in liquidation. It is the case of the workers that the said firms had borrowed monies from Kalupur Commercial Co-operative Bank Ltd. (for brevity ‘Kalupur Bank’) and Manek Chowk Co-operative Bank Ltd. (for brevity ‘Manek Chowk Bank’). On account of non-payment of those loans, the above-named banks filed suits against the aforesaid firms before the Board of Nominees where decrees were passed against the firms, partners and their guarantors. The sale proceeds during the course of execution proceedings are lying deposited with the City Civil Court, Ahmedabad. The workers prayed that the properties which have been sold in the aforesaid execution proceedings really belong to the Company in liquidation, and therefore, the workers have a claim over the same along with the secured creditors, and therefore, the amounts lying with the City Civil Court, Ahmedabad should be distributed amongst the workers and the secured creditors of the Company in liquidation.
In February/March, 1993, this Court granted ad interim/interim stay of the execution proceedings and the amounts were required to be invested with Kalupur Bank as a short term deposit only,
3. Company Application No. 248 of 2000 is filed by Bank of India which claims to be the secured creditor of the Company in liquidation as well as of Sukan Chemicals, a firm whose properties have been sold and the amounts are lying deposited in the City Civil Court in the execution proceedings filed by other creditors against Sukan Chemicals and the partners of Sukan Chemicals in their capacity as partners and as guarantors. Bank of India itself had also filed suits against Sukan Chemicals and its partners and also against the Company
(now in liquidation) before the City Civil Court at Ahmedabad. Those suits, which were filed before 1993, are now before the Debt Recovery Tribunal, Bank of India also claims to be a secured creditor qua properties of the Company in liquidation as well as the properties of the above-named firm-Sukan Chemicals. Bank of India has filed the above-numbered application for vacating the interim orders passed in Company Application Nos. 66 to 68 of 1993.
4. This Court has heard Mr. Anand for the National Labour Union, Mr. S.B. Vakil for Kalupur Bank, Mr. J.T. Trivedi for Bank of India and Mr. U. D. Shukla for the Manek Chowk Bank.
5. Mr. Anand for the workers’ Union has submitted that in view of the affidavit dated 1-12-1992 (Annexure “A” Page. 5) filed by Madhukant Pranlal Shah in Company Petition No. 39 of 1990 and the affidavit dated 21-8-1991 (Annexure-II Page 36) filed by Indravadan Pranlal Shah in Misc. Civil Application No. 498 of 1989, the partnership firms and the Companies were treated as one for the purpose of management and finances and that even as per the order dated 15-3-1990 passed by the authority under the Payment of Wages Act in P.W. Application No. 108 of 1990, the Companies and the partnership firms were the same entity and the workers were held entitled to recover their dues from the properties of the Companies as well as from the properties of the partnership firms under the common management. It is, therefore, submitted that the sale proceeds from the sale of the properties purporting to be in the name of the firms have to be treated as sale proceeds from the sale of properties of the Company in liquidation, and therefore, the workers have a right to claim priority under the provisions of Sections 529 and 529A of the Companies Act, 1956 over the said amounts lying in the City Civil Court.
It is further submitted that this Court has the power and authority to lift the veil and to give a finding that the properties in question, which have been sold in the course of execution proceedings before the City Civil Court, really belong to the Company in liquidation. In support of the said contention, reliance has been placed on the decisions of the Supreme Court in AIR 1988 SC 1737; AIR 1986 SC 1370 ; AIR 1984 SC 1579 ; AIR 2001 Kant. 176 ; AIR 1999 SC 2352 ; 2001 (4) Comp. LJ 44 and also in AIR 1994 Del. 25,
5A. In reply, Mr. S. B. Vakil, learned Counsel for Kalupur Bank has raised a preliminary contention that Company Application Nos. 66 to 68 of 1993 are not maintainable as they do not state the provisions of law or the rule under which the applications are filed. It is submitted that in view of the provisions of Rule 17 of the Companies (Court) Rules, 1959 read with Form No. 2, the applicant is required to state the provisions of law under which an application is filed. It is, therefore, submitted that the applications are not maintainable.
Secondly, it is submitted that in view of the provisions of Section 10 of the Companies Act, 1956 as interpreted by the decision of this Court in M.G. Doshit v. Reliance Petrochemicals Ltd., 1993 (2) GLH 734, the application would lie only if there is any specific provision in the Companies Act conferring jurisdiction on the Company Court to decide the dispute and that only such
Thirdly, it is submitted that this Court has no jurisdiction to entertain the present applications because the claim is made over monies lying in the City Civil Court on account of sale proceeds pursuant to the sale of properties of the partnership firms against which decrees or awards were passed by the Board of Nominees in suits filed by the two co-operative banks. The Company was not a party to the suits or to the execution proceedings. Hence, the prayer made in these applications for transferring the execution proceedings to this Court cannot arise because under the provisions of Section 446(3) only proceedings by or against the Company can be tried by the Company Court which is seized of the winding-up proceedings against the Company. In the instant case, the winding-up proceedings are in respect of Aarthi Petrochemical Industries Pvt. Ltd. The execution proceedings in question pending before the City Civil Court are not by or against Aarthi Petrochemical Industries Pvt. Ltd., whether before this Court passed the winding-up or thereafter. Hence, the present applications are misconceived and deserve to be dismissed. It is further submitted that the execution proceedings against the partnership firms cannot be converted into proceedings against the Company because only those proceedings which are by or against the Company can be tried before this Court.
It is further submitted that there is no question of invoking or applying the doctrine of lifting the corporate veil because what the workers’ union purports to do is to request the Court that the properties of the partnership firms, which are not corporate entities, be covered with the corporate veil of the Company in liquidation and that this is quite different and opposite to the lifting corporate veil of the Company which is before the Court. It is submitted that since the properties which were sold in the course of execution proceedings belonged to the partnership firms which were debtors of the two co-operative banks in question, the workers of the Company in liquidation have no right to make any claim on the sale proceeds pursuant to the sale of the properties of the partnership firms as the workers can only look to the properties of the Company in liquidation.
It is further submitted that in any view of the matter, there is nothing to show that the properties in question were purchased out of the funds of the Company which is now in liquidation. Hence, on merits the workers’ Union have no case.
6. Mr. U. D. Shukla for the Manek Chowk Co-operative Bank Ltd. has also adopted the aforesaid submissions and further submitted that so-called affidavits of Madhukant Pranlal Shah and Indravadan Pranlal Shah were filed in proceedings to which the banks were not parties and that in any view of the matter, the so-called admissions made in those affidavits did not bind the creditor-banks. It is submitted that the so-called admissions did not prejudice the interest of the deponents of those affidavits as the deponents, (the Directors of the Company in liquidation) were interested in the properties of the partnership firms being treated as common properties of the firms and the Company in liquidation so that the workers’s dues can be paid from those funds and the Directors are not required to face any prosecution or any other consequence
flowing from the breach of any Labour laws such as Payment of Wages Act. The so-called admissions were, therefore, made in collusion with the workers to avoid any criminal liability of the directors.
It is further submitted that the Payment of the Wages Act is for the limited purpose of deciding the question arising in those proceedings and it cannot bind the creditors of the partnership firms who are not parties to the said proceedings.
It is further submitted that admissions by the Directors of the Company in liquidation and the partners of the partnership firms in question cannot bind the creditors of the partnership firms. Admissions are not to be treated as conclusive evidence and this Court has got the discretion to decide whether to act on admissions or to ask for evidence. It is further submitted that apart from the fact that the doctrine of lifting the corporate veil does not apply in this case, even where it is applicable, it is only in case of fraud that such doctrine can be invoked, but no such case is pleaded in these applications.
7. Mr. J. T. Trivedi, learned Counsel for Bank of India has submitted that Bank of India is a secured creditor qua the properties of the Company in liquidation and also qua the properties of the partnership firms and it is not getting its dues as a secured creditor of the properties of the partnership firms on account of the interim stay operating in these proceedings, and that therefore, the interim stay deserves to be vacated so that the execution proceedings can go on and Bank of India can lodge its claim for share in the sale proceeds of the properties of the partnership firms.
8. In rejoinder, Mr. Anand for the workers’ Union has submitted that a Company Court does have the jurisdiction to entertain all claims in respect of a Company in liquidation including the claim over the properties which are sold in the course of execution proceedings before the City Civil Court, which are properties of the Company in liquidation and not of the partnership firms.
Reliance is also placed on the decisions of the Apex Court in Uttam Singh Duggal & Co. Ltd. v. Union Bank of India and Ors., 2000 (7) SCC 120 and In Re : Suo Motu Proceedings Against R. Karuppan, Advocate, 2001 (5) SCC 289 in support of the contention that admissions can be relied on for passing final orders and that the affidavits do constitute valid evidence. It is submitted that merely because the promoters of the Company in liquidation had formed separate partnership firms and Companies in order to avoid applicability of relevant tax laws and labour laws, it did not mean that the properties standing in the name of the firms cannot be treated as properties of the Company in liquidation.
9. Having heard the learned Counsel for the parties, it appears to the Court that various proceedings were taken out by the two co-operative banks viz. Kalupur Commercial Co-op. Bank Ltd. and Manek Chowk Co-operative Bank Ltd. for recovery of their dues/advances to different partnership firms-Gaurav Chemicals, Sukan Laboratories Pvt. Ltd., Sims Laboratory, Aditya Distributors, Parag Investors and to various individuals who were partners in these partnership firms and who also happened to be the Directors of the Company in liquidation. Details of those execution proceedings are as under :-
Darkhast No.
Judgment debtor
Amount
sought to be recovered on date on Darkhast (in Rs.)
464/90
Gaurav
Chemicals Partner I, P. Shah
10,12,744-33
465/90
Sukan
Laboratories Pvt. Ltd.
16,08,244-62
Madhukant P. Shah
Indravadan P. Shah
466/90
Sims Laboratory
19,73,082-11
Madhukant P. Shah
Indravadan P. Shah
467/90
Aditya Distributors
11,31,074-94
Madhukant P. Shah
Indravadan P. Shah
468/90
Indravadan P. Shah
11,08,013-71
Madhukant P. Shah
469/90
Parag Investors
30,49,767-48
Indravadan P. Shah
Madhukant P. Shah
All the said darkhasts were consolidated in Darkhast No. 465 of 1990.
10. In the course of the aforesaid execution proceedings, certain properties were sold, including the properties known as “Kalpana” Bungalow on the C. G. Road, Ahmedabad. The bungalow was sold as the property of Indravadan Pranlal Shah, one of the Directors of the Company in liquidation, who is also a partner and guarantor of the firms.
The claim of the workers’ Union is that because the Registered Office of the Company in liquidation was at the aforesaid address, the property belonged to the Company in liquidation and the workers, have therefore, a priority claim over the said sale proceeds in view of the provisions of Sections 529 and 529A of the Companies Act.
11. It appears to the Court that it is not necessary to decide the preliminary objection raised by the co-operative banks because even on merits, the workers’ union has not made out any case that the properties which belonged to the partnership firms really belonged to the Company in liquidation. There is no material to indicate that the properties belonging to the partnership firms in question or belonging to the partners in their individual capacity were purchased from the funds made available by or from the Company in liquidation.
12. However, according to the workers’ Union, because the Directors themselves had admitted in the affidavit dated 1-12-1992 in Company Petition No. 39 of 1990 and in the affidavit dated 21-8-1991 in Misc. Civil Application No. 498 of 1989 that the partnership firms and the Company in liquidation
were treated as one for the purpose of management and finances, and therefore, no further material is required to be produced by the workers.
The contention is misconceived because the affidavits merely indicated that the partnership firms and the Company in liquidation were under the common management. The affidavits did not indicate that the properties of the partnership firms were purchased with the funds made available by the Company in liquidation. The secured creditors like the two co-operative banks had advanced monies to the partnership firms, and therefore, the partnership firms as well as the respective partners were held to be liable to pay the banks’ dues and in the execution proceedings, the properties of the partnership firms and their individual partners have been sold and the proceeds are lying before the executing Court being the City Civil Court at Ahmedabad. Such secured creditors cannot be held to bound by the so-called admissions made by the partners in partnership firms or their guarantors in the proceedings where the secured creditors were not parties and they had no opportunity to controvert such admissions. In any case, since the Directors and partners have not even come out with a specific case that the properties of the partnership firms were purchased from the funds made available by or from the Company in liquidation, it cannot be said that the admissions made by the directors/partners through the aforesaid affidavits have the effect of converting the properties of the partnership firms into the properties of the Company in liquidation.
13. The same reasoning will apply to the orders passed by the authority under the Payment of Wages Act. The application before the authority under the Payment of Wages Act was filed on behalf of the workers of the Company in liquidation as well as the workers of the partnership firms. The workers had gone before the authority with their case that the partnership firms as well as the Company in liquidation were under the common management and were bound to pay the dues of the workers whether employed by the company went in liquidation or by the partnership firms. There was no contest to this claim, and therefore, the authority under the Payment of Wages Act passed orders against the Company in liquidation as well as against the partnership firms. Since the authority under the Payment of Wages Act was not required to test the claim of the workers and since the secured creditors of the partnership firms in question like the petitioners herein were not parties to those proceedings, any orders passed by the authority under the Payment of Wages Act cannot bind the creditors of the partnership firms.
14. Reference made to one boiler does not carry the workers’ case any further. It is only stated that the boiler was used for the purposes of the Company in liquidation as well as for the partnership firms. Beyond that nothing further is stated. On the basis of such a solitary instance, it is not possible to hold that the properties of the Company in liquidation as well as the properties were so inter-connected with each other that they must be treated as a part of the common concern.
15. In Sudarsan Chits (I) Ltd. v. O. Sukumaran Pillai, AIR 1984 SC 1579, the Apex Court considered the object underlying the provisions of Sections 446(2),
456 and 457 of the Companies Act and held that Sub-section (2) was introduced to Section 446 to enlarge the jurisdiction of the Court winding-up the Company so as to facilitate the disposal of winding-up proceedings. In view of the said provision, the Official Liquidator is not required to file suits in different Courts to realize and recover the claims and subsisting debts owed to the Company in liquidation. If such a provision was not there, the Official Liquidator would have been compelled to file suits, appeals etc. which would not only result into multiplicity of proceedings but would hold up the progress of the winding-up proceedings, and that it was therefore, intended that the Company in liquidation must be saved from this prolix and expensive litigation and the disposal of winding-up proceedings must be accelerated.
There is no dispute about the object underlying the provision of Section 446(2). But when the workers have not come with any material nor has the Official Liquidator come out with any case that the properties standing in the name of the partnership firms were really the properties of the Company in liquidation or were purchased from the funds made available by the Company in liquidation or that the funds of the Company in liquidation were transferred directly or indirectly for the purchase of the properties, the question of invoking the provision of Section 446(2) cannot arise.
16. As regards reliance placed by the learned Counsel for the petitioners on the decision of the Apex Court in State of V.P. v. Renusagar Power Co., AIR 1988 SC 1737 (Paras 50-54 and 63-67), the same pertains to the question of lifting corporate veil or piercing the corporate veil. In Para 63, the Apex Court has made very pertinent observation that although in the expanding horizon of modem jurisprudence, lifting of corporate veil is permissible and its frontiers are unlimited, it must depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties.
When the two co-operative banks and Bank of India gave advances to the partnership firms, they were made to believe that the properties belonged to the partnership firms and on the strength of that representation, advances were given to the partnership firms and it would not be justice now to say that the properties did not belong to the partnership firms but jointly to the Company in liquidation and the partnership firms, and therefore, the banks should stand in queue with the secured creditors of the Company in liquidation and the workers. Apart from that, when there is no material on record to hold that the properties of the partnership firms in question and that properties of the Company in question were so intermingled as to separate one from the other, it is not possible to give any finding that the doctrine of lifting corporate veil should be invoked in the instant case.
17. In L.I.C. of India v. Escorts Ltd., AIR 1986 SC 1370, the Apex Court held that generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern, it is neither necessary nor
desirable to enumerate the classes of cases where lifting the veil is permissible, since, that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.
In the instant case, on the basis of the material on record which merely consists of statements made by the Directors of the Company in liquidation who were also partners in some of the partnership firms whose properties have been sold in execution proceedings for recovery of advances taken by the partnership firms which merely indicate that the partnership firms and the Company were under the common management, there is nothing to indicate that they were inter-connected financially. Applying the aforesaid test, it is not possible to state that the partnership firms and the Company were inextricably connected as to be, in reality, part of one concern.
18. Reliance placed on the decision of the Bombay High Court in Viral Filaments Ltd. v. Indusind Bank Ltd., 2001 (4) Comp. LJ 44 is also misconceived. There the Court was concerned with the interpretation of the decision of the Apex Court in Allahabad Bank v. Canara Bank, 2000 (4) SCC 406. In the instant case, the Court is not concerned with the alleged conflict between the provisions of the Companies Act and the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
19. As regards the contention of Mr. S. B. Vakil that the applications are not maintainable, the Court expresses no opinion as the applications even otherwise deserve to be dismissed. The Court would, however, like to clarify that on the basis of the material which may be made available to him, if the Official Liquidator finds that any properties or funds of the Company in liquidation were transferred or diverted to the partnership firms in question or to any individual director of the Company in liquidation or to the partners of those partnership firms or any other individuals, this judgment shall not preclude the Official Liquidator from exercising his powers and discharging his duties under the provisions of the Companies Act, 1956 and in following those properties wherever they have gone.
ORDERS
20. In view of the above discussion, Company Application Nos. 66, 67 and 68 of 1993 are dismissed with a clarification that this judgment does not preclude the Official Liquidator from exercising his powers and discharging his duties under the provisions of the Companies Act, 1956 and in following the properties of the Companies in liquidation wherever they have gone.
The ad interim/interim stay granted by this Court earlier in these applications stands vacated.
21. It is further clarified that since the ad interim stay is vacated and the execution Court will proceed in accordance with law, any deposit of the monies lying before the City Civil Court or appropriation thereof by the concerned creditors shall be without prejudice to the powers of the Official Liquidator
to take out appropriate proceedings in accordance with law insofar as the properties of the Company in liquidation are concerned.
22. In view of the above order, Company Application No. 248 of 2000 filed by Bank of India does not survive and is accordingly disposed of as infructuous.
23. In order to see that the workers of the Company in liquidation are not deprived of their legitimate dues, it is directed that if the Official Liquidator has not so far disposed of the properties of the Company in liquidation, immediate steps shall be taken for disposing of the unsold assets of the Company in liquidation, and thereafter, to disburse the same amongst the secured creditors and workers of the Company in liquidation.
24. At this stage, Mr. Anand, learned Counsel for the National Labour Union prays that the interim stay operating till today may be continued for sometime to enable her clients to have further recourse in accordance with law.
In the facts and circumstances of the case, the request is granted and the ad interim/interim stay operating till today shall continue till 22-3-2002.