Thomas Joseph vs Official Liquidator and Others

A. Gopal Reddy, J.—This application is filed by the applicant under rule 9 of the Companies (Court) Rules, 1956, to direct respondent No. 1, i.e., the official liquidator to return to the applicant the additional machinery brought in to the company by him, the description of which is given in document No. 4 at page 17 of the material papers and also return to the applicant an amount of Rs. 20,00,000 brought in by him as promoter''s contribution from the funds/assets of the company and further direct respondents Nos. 2 and 3 to return to the applicant Rs. 2,00,000 each received by them as "upfront" payment. It is stated by the petitioner that he is a regular customer forming a major clientele and dependent upon the products of the company in liquidation for the petitioner''s own manufacturing activity. When Satya Sai Polymers Limited Company was not in a position to conduct the business, the board of directors requested the petitioner to take over the company to strengthen its management by becoming its managing director. In furtherance of this proposal a meeting of a consortium was arranged consisting of respondents Nos. 1 and 2, S. B. I., and the directors, auditors of the company and the petitioner on March 9, 1994. At the said meeting it was decided that the petitioner shall submit a detailed revised proposal envisaging the quantum of investment required for repairs and renovation of machinery, margin money for working capital, payment of statutory dues, production schedule, marketing of the product profitability statement, etc. to the financial institutions within one week. Respondent No. 1 agreeable for induction of the petitioner, stated that the petitioner has to seek the approval of APSFC also by making a token payment of Rs. 2,00,000 each to APIDC and APSFC as "upfront" money and make the unit fully operational by August, 1994. In response to the above consortium meeting and to revive the unit the petitioner paid Rs. 2,00,000 each to respondents Nos. 2 and 3 and also brought in machinery worth Rs. 23,00,000 as evaluated by the auditor and apart from the same he also invested a sum of Rs. 20,00,000 for running the unit. As the company was a sick industrial company for taking over, it needs approval from BIFR and accordingly the board of directors has made a reference to the BIFR in April, 1994, and in turn the BIFR on September 13, 1994, passed interim orders quoting the entire facts approving the consortium meeting. Later on the BIFR by proceedings dated May 27, 1996, ordered winding up of the company and referred the matter to this court.

The APSFC sealed the factory premises while it was in operation on June 28, 1996, and also advertised for sale of machinery, on July 2, 1997. This court by order dated July 3, 1997, ordered winding up on the reference made by the BIFR. The APSFC filed C. A. No. 102 of 1999 u/s 446 to remain outside the winding up proceedings and proceed against the property seized by him. It is submitted by learned counsel for the petitioner that the petitioner brought machinery which is approximately valued at Rs. 23 lakhs as per the list enclosed to the application at page No. 17 of document No. 4. The said machinery was brought by him subject to approval by the BIFR and he installed some of the machinery in the factory and some machinery is still lying in the premises of the company. As the revival scheme was not approved by the BIFR, the applicant is entitled to take back the machinery, which is installed by him and is lying in the factory premises. Hence he prays this court to issue a direction to the official liquidator to return the machinery brought by him as mentioned at page No. 17 of document No. 4. He further seeks a direction to return a sum of Rs. 20 lakhs, which was invested by him ; and also direct respondents Nos. 2 and 3 to refund a sum of Rs. 2,00,000 each paid by the petitioner towards "upfront" amount.

In response to the application, the official liquidator filed his counter stating that the statement of affairs furnished by the applicant/petitioner shows that the company was seized on June 28, 1996, by respondent No. 3 and he came to know about this fact by the above statement of affairs, After the winding up order, the official liquidator has requested respondent No. 3 to give details as to properties of the company by furnishing copies of panchanama/inventory. He also stated that the seizure of the company much after the BIFR has referred the winding up of the company and advertising and initiating the procedure for sale of the properties of the company appears to be illegal and void.

Respondents Nos. 2 and 5 also filed their counters stating that the machinery brought in by the petitioner and payment of Rs. 2,00,000 each to the second and third respondents is subject to acceptance of the revival proposal of the BIFR and that his appointment as managing director was also subject to approval of the IDBI and that since approval was not given and the scheme was rejected, his position in the company under liquidation is that of a third party being neither a shareholder nor a creditor and that in view of the same his entire investment in the company under liquidation including Rs. 2,00,000 each paid to the second and third respondents should be refunded/returned to him is untenable. The said amount was paid by him to respondents Nos. 2 and 3 towards the dues payable by the company under liquidation for allowing him to show his bona fides and the entire machinery brought in by the applicant as a promoter of the company forms part of the assets of the company in liquidation and they will have a charge over the properties.

Similar contentions are advanced by the third respondent. It is contended by him that the money and machinery brought in by the petitioner was without any specific directions in this regard by the BIFR. The applicant has to necessarily abide by the due process of law. He is not entitled to any relief as claimed by him.

Firstly, it has to be seen whether the applicant is a shareholder or a managing director of the company in liquidation. He only wanted to take over the company subject to the approval of the BIFR and the BIFR has not approved the scheme and ordered for winding up. If that is so, he cannot claim the amounts as an ex-managing director of the company in liquidation.

The contention of learned counsel for the petitioner is that this court ordered winding up of the company and the properties are in the hands of the official liquidator and this court alone can order for release of the machinery cannot be accepted for the reason that admittedly the property was seized by the third respondent-Corporation on June 28, 1996 and the official liquidator never took possession of the seized property. This court directed the third respondent to stay outside the winding up proceedings and proceed against the properties belonging to the company in liquidation only. If the property, which did not belong to the company and belonged to third parties like the petitioner, this court will not exercise any power to grant permission to the APSFC to proceed against the properties belonging to the third parties- If the third respondent seized the property, which did not belong to the company, then the petitioner can take appropriate proceedings against the APSFC for release of such property which did not form part of the assets of the company. But this court cannot direct the APSFC or the official liquidator to release the seized property which did not belong to the company. With regard to the amounts invested by the petitioner in the company in liquidation, his position will be like that of an unsecured creditor and as and when the properties of the company in liquidation are sold, he can submit his claim and establish before the official liquidator like an unsecured creditor. But at this stage, this court cannot order for refund of the amount alleged to have been invested by the petitioner. Similarly, an amount of Rs. 2,00,000 paid by the petitioner to the second and third respondents each as "upfront" amount cannot also be directed to be released, as the same is also paid on behalf of the company in liquidation. Admittedly, the petitioner claims that the property belongs to him and the same is not the property of the company and he brought in the said machinery pursuant to the interim orders passed by the BIFR and it is open for the petitioner to approach the BIFR for appropriate orders to return the machinery or any money invested by him pursuant to the interim orders granted by the BIFR ; and the petitioner is also at liberty to approach the BIFR seeking appropriate relief.

In view of the same, the application is liable to be dismissed and it is accordingly dismissed. Any observation made herein will not be construed as this court has decided the rights of the parties in any manner whatsoever. No costs.