Judgment · High Court · 2011

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 19.12.2011CORAMTHE HON'BLE MRS. JUSTICE R.BANUMATHIandTHE HON'BLE MS. JUSTICE R.MALAO.S.A.No.170 of 2011 Nirmal Gadhiya ...Appellant Vs.

Spencer's Group Aerated Water FactoryEmployees Union, rep.by its General SecretaryNo.32, V.O.C.Nagar, 3rd StreetDr.Ambedkar College RoadChennai – 600 012.

The Official Liquidator, High Court, MadrasAs the liquidator of Viswadharshan DistributorsPvt. Ltd., (in liquidation)UTI Buildings, II Floor, No.28, Rajaji salai, Chennai – 600 001.

The District Collector, Kancheepuram District.

The TahsildarTaluk Office, Kancheepuram....RespondentsPrayer: Original Side Appeal filed under Order XXXVI Rule 1 of the Original Side Rules read with Clause 15 of the Letters Patentagainst the order dated 1.4.2011 made in C.A.No.1165 of 2010 inC.P.No.138 of 1996 on the file of this Court. For Appellant : Mr.T.K.Seshadri Sr.Counselfor Mr.T.K.Bhaskar https://hcservices.ecourts.gov.in/hcservices/ For Respondents: Mr.N.G.R.Prasad, forM/s.Row and Reddy for R.1Mr.S.R.Sundar, Official Liquidator for R.2 Mr.M.Venugopal, Addl. Govt.pleader for RR.3 and 4 JUDGMENTR.BANUMATHI,J.Challenge in this Intra Court appeal is the order dated1.4.2011 made in C.A.No.1165 of 2010 in C.P.No.138 of 1996, whereby the learned single Judge held that the liability of the Company can be fixed on the estate of H.Anraj including the land and building and ordered issuance of notice to the appellant as well as the other legal heirs of deceased H.Anraj to show cause as to why the liability without any limitation be not fixed on the estate of late H.Anraj for having conducted the affairs of the Company in a fraudulent manner.2.

Resisting the application, the appellant also filed counter contending that late H.Anraj is the owner of the property situated in Chithambakkam village in S.Nos.201/2, 201/4 in pattaNo.56 and Survey No.201/1 in Patta No.170 and in Iluppappatthuvillage in Survey Nos.195/1 and 198/1 in Patta No.369 and in SurveyNo.195/3 in Patta No.123 and the said properties do not belong to the Company in liquidation. It was further averred that the Union is seeking for a direction to the Official Liquidator to bring the properties for sale in a summary manner without adverting to title and ownership of the property and the application is liable to be dismissed. The appellant alleged that the Union is seeking to deprive the legal heirs of late H.Anraj of the property to which they are lawfully entitled to seek to have the personal property of theEx.Director to be sold in a summary manner.

Upon consideration of the rival contentions, the learned single Judge held that the lease deed between H.Anraj and Company was an arrangement so that no person should know about such an arrangement and that H.Anraj conducted business of the Company with the intention to defraud the creditors. On those findings, the learned Judge held that the liability of the Company can be fixed on https://hcservices.ecourts.gov.in/hcservices/ the estate of H.Anraj including the land and building and therefore ordered issuance of notice to the appellant and other legal heirs of late H.Anraj to show cause as to why the liability be not fixed on the estate of H.Anraj for having conducted the affairs of the Companyin a fraudulent manner.

Being aggrieved by the issuance of notice to fasten the liability of the Company on the estate of deceased H.Anraj, the appellant has preferred the appeal.

Grievance of the appellant is regarding the findings recorded by the trial Judge as to the alleged fraudulent conduct of business. Learned Senior Counsel for appellant contended that there was no fraud alleged against the Company and while so the learned Judgeerred in inferring that the lease was fraudulent. It was further submitted that the observation of the learned single Judge amounts to virtually a declaration that the property belongs to the Company. Thelearned Senior Counsel would further submit that in response to the show cause notice, appellant and other legal heirs are ready to put forth their defence in the Company Court, however, would urge for deletion of findings and sought for issuance of a direction that the questions have to be gone afresh in the light of evidence and materials.

Taking us through the proceedings for the past two decades, Mr.N.G.R.Prasad, learned counsel for workmen contended that the workmen have been fighting out the litigation from 1991 and on earlier occasions, neither H.Anraj nor the 4th respondent have chosen to raise the plea that the property is the personal property of H.Anraj. In any event, under Rule 9, Company Court would have inherent jurisdiction to deal with the matter. The learned counselfor the workers union submitted that the Court has the right to lift the corporate veil. In this regard, reliance was placed upon decisions of the Supreme Court in the case of WORKMEN EMPLOYED INASSOCIATED RUBBER INDUSTRY LTD., BHAVNAGAR VS. ASSOCIATED RUBBERINDUSTRY LTD., BHAVNAGAR AND ANOTHER, ((1985) 4 SCC 114) and DELHIDEVELOPMENT AUTHORITY VS. SKIPPER CONSTRUCTION CO.(P) LTD. ANDANOTHER ((1996) 4 SCC 622).

Re Contention: Maintainability of Petition in C.A.No.1165of 2010 has been filed under Rules 9, 11(b) of Company Court Rules:-The learned Senior Counsel for appellant contended that petition was filed under Section 542 of the Companies Act and when express provision is available in the Act, the workmen cannot seek to invoke the inherent jurisdiction of the Company Court under Rule 9. It was further submitted that when the petition itself is not maintainable the learned single Judge erred in holding that the business of the Company was carried on fraudulently with an intention to defraud the creditors. https://hcservices.ecourts.gov.in/hcservices/

The learned counsel for 1st respondent Union submitted that the workmen have filed the petition only in pursuance to the directions issued by the Court in W.P.No.49759 of 2006 dated22.2.2010 and no objection could be taken regarding the maintainability of the petition.

Challenging G.O.(D) No.542 (Labour and Employment) dated24.7.1998, the 2nd respondent Company – Viswadharshan DistributorsPvt. Ltd. has filed W.P.No.16583 of 1998. The said Writ Petition was disposed of on 23.11.2009 giving liberty to the workmen to approach the Official Liquidator with a claim petition and directing OfficialLiquidator to consider the same on merits. Challenging the distraintproceedings in bringing the properties in S.Nos.201/2, 201/4 and201/1 of Chittiambakkam village, Kancheepuram Taluk, the appellant had filed W.P.No.49759 of 2006. The said Writ Petition was disposed of on 22.2.2010 "directing the Workers Union to file an application before the Company Court and further directing the Company in liquidation to co-operate for disposal of the same at an early date. "

Of course, in W.P.No.16583 of 1998, the learned Judgegranted liberty to the Workers Union to approach Official Liquidator; but in the subsequent order dated 22.2.2010 in W.P.No.49759 of 2006,the Workers Union were directed to file appropriate application before the Company Court. As rightly contended by the learned counsel for 1st respondent Union, only in pursuance to the said direction in W.P.No.49759 of 2006, the Workers Union filedC.A.No.1165 of 2010 to bring the properties of the Company situated in Chithambakkam village in S.Nos.201/2, 201/4 in Patta No.56 and Survey No.201/1 in Patta No.170 and in Iluppappatthu village in Survey Nos.195/1 and 198/1 in Patta No.369 and in Survey No.195/3 in Patta No.123 for sale. There is no merit in the objection raised regarding the maintainability of the petition filed by the workers union.

It is pertinent to note that in W.P.No.49759 of 2006,challenge was to the notification in R.C.No.7859/98/D dated14.11.2006 published in the Kancheepuram District Gazette dated1.12.2006 in respect of the above said properties and to bring them to auction. The Order dated 22.2.2010 made in W.P.No.49759 of 2006directing the workmen to file appropriate application before the Company Court has become final. Once the liberty was granted to the workmen to move the Company Court and to take out an appropriate application, having not challenged the same, the appellant cannot turn round and contend that the application filed by the WorkersUnion is not maintainable.

For the first time the appellant had produced the Wealthtax assessment order of H.Anraj for the assessment year 1989-90showing the levy of wealth tax and also receipts for payment of wealth tax. In this regard, our attention was drawn to the https://hcservices.ecourts.gov.in/hcservices/ certificate/details given by Deccan Agency Group to the AssistantCommissioner of Income tax, City Circle II (Inv), Madras in whichH.Anraj is stated to have purchased agricultural lands. Placingreliance upon levy of wealth tax and also the details furnished by Deccan Agency Group, the learned Senior Counsel for appellant submitted that in the certificate issued by Deccan Agency Group, the property is shown to be the property of the individual/Anraj and the same is strengthened by the details of Wealth Tax assessment and had the opportunity been given to appellant, the appellant would have produced the relevant documents before the Company Judge and without affording such opportunity the Company Court was not justified in making observations regarding the conduct of Anraj.

Per contra, the learned counsel for respondent submitted that the information given by the Deccan Agency Group cannot be relied upon and that in any event the same had been given only totally with the wealth tax and no credence could be attached to such an information furnished by Deccan Agency Group.

We do not propose to express any opinion on the merits of the contentions of either parties, since only show cause notice has been issued to the appellant and it is open to the appellant to produce the relevant documents/materials before the Company Judge. The weight to be attached to the Wealth Tax Assessment Order and information given by Deccan Agency Group remains to be seem after the appellant and other legal heirs file their response.

Contention regarding observations that the act of H.Anrajwas fraudulent:- As pointed out earlier, the property in SurveyNos.201/1, 202/2, 201/4 of Chittiambakkam village and S.Nos.195/1,195/3 and 198/7 and Illuppa Pattu village were purchased in the name of H.Anraj by a sale deed dated 6.6.1988. By perusal of xerox copy of the sale deed, it is seen that the sale deed was originally written in the name of the Company in liquidation – "ViswadarshanDistributors Private Limited...... represented by its ManagingDirector H.Anraj" and subsequently name of the Company has been struck off leaving only H.Anraj. Subsequently, by an unregistered lease deed dated 20.7.1998, the property was leased to the Company in liquidation for a period of ten years by a lease deed dated20.7.1988, the lease deed has been written in a seven rupees stamp paper purchased on 9.6.1988 and the document is not registered.

Pointing out the manner in which the name of the Company in liquidation has been struck off in the sale deed and also that the lease deed for a period of ten years was executed in the name of Company by an unregistered document, the learned single Judgeobserved that the intention was to purchase the land for the Company, but at the last moment certain changes were made with a fraudulent https://hcservices.ecourts.gov.in/hcservices/ intention and that the subsequent act of executing the lease deed and not getting it registered shows that the act of H.Anraj was fraudulent with an intention to defraud the other creditors. Takingstrong objection to the above observations, the learned SeniorCounsel appearing for appellant contended that by striking of the name of the Company no such inference can be made that the Company in liquidation was supposed to be the purchaser. It was further submitted that the provisions of Civil Procedure Code apply to the Company Court pursuant to Rule 6 of the Company Court Rules and Order6 Rule 4 of Civil Procedure requires a specific pleading of fraud and in the absence of any specific pleading there can be no inference or finding of fraudulent intention and the learned Judge's finding of fraud in terms of mere deletion of the name of the Company in liquidation is without any basis and unsustainable. The main contention of appellant is that in the absence of any pleading of fraud, no allegation of fraud can be inferred and such inference deserves to be set aside.

In so far as the observations regarding the lease deed, the learned Senior Counsel would submit that the inference of the learned Judge that the lease deed was with an intention to defraud the creditors of the Company. It was further submitted that having noted that the lease deed was inadequately stamped and not registered, the learned Company Judge ought to have kept in view the consequence of non-registration under Section 49 of the RegistrationAct and merely because the lease deed was unregistered the learnedJudge was not right in drawing an inference of fraud.

Drawing our attention to the various earlier proceedings, the learned counsel for the Workers Union submitted that having regard to the past conduct of H.Anraj and the appellant, the learnedJudge rightly drew an inference of fraud. In this regard, our attention was drawn to various proceedings between the workmen and the Management, which ultimately led to the issuance of G.O.Ms.No.542dated 24.7.1998. In pursuance of G.O.Ms.No.542 dated 24.7.1998,recovery proceedings were initiated by the Tahsildar dated 9.9.1998and the Management filed W.P.No.16583 of 1998. The conditional order to deposit Rs.50,00,000/- was also not complied with, which led to the filing of Contempt Petitions – C.P.Nos.456 of 2001 and 457 of2001. The Tahsidlar, Kancheepuram took possession of the building premises on 20.5.2002 and sold the property on 20.5.2002. In pursuant to G.O.No.542 dated 24.7.1998, Tahsildar, Kancheepuram has been taking efforts to bring the property for sale. In the meanwhile, in the Company Petition – C.P.No.138 of 1996, by the order dated5.6.2002, the Company was ordered to be wound up and the OfficialLiquidator requested the Tahsildar, Kancheepuram to hand over the keys along with the list of inventory of assets. In spite of various https://hcservices.ecourts.gov.in/hcservices/ proceedings and even after lapse of several orders, the amount due to171 workmen of the Company could not be realised. Even though the Tahsildar had taken various steps in bringing the property to sale,H.Anraj had not raised the plea that the property belonged to him. For the first time, H.Anraj challenged the auction notice published in the Kancheepuram District Gazette dated 1.12.2006 in respect of the said lands in Survey Nos.201/2, 201/4 and 201/1 of Chittiambakkamvillage, H.Anraj had come out with a plea that the Company did not have any right and that the property belongs to him. The learned counsel for the workers union Mr.N.G.R.Prasad has taken us through the various earlier proceedings.

Taking note of the earlier proceedings and upon the perusal of the xerox copy of the sale deed and also the lease deed and the available materials, the learned single Judge prima faciesatisfied that the act of H.Anraj was fraudulent with intention to defraud the creditors. Such an observation has been made on the primafacie satisfaction of the learned Judge. We do not think that such an observation is without any basis or materials nor can it be said that the observation was an unwarranted one. Having regard to the available materials, as pointed out earlier, only a show cause notice has been issued to the appellant and the other legal heirs of deceased H.Anraj to show cause as to why the liability without any limitation be not fixed on the estate of late H.Anraj. In our considered view, the observation of the learned Judge would not in any way prejudice the appellant.

The learned Senior Counsel for appellant then contended that the application was not the one filed under Section 542 of the Companies Act and while so in an application filed under Rule 9 and11(b) the learned single Judge was not right in making observations regarding the nature of the transactions/lease deed and also conducting of business.