Supreme Court of India

STATE OF WEST BENGAL AND ORS,versusSRI PRONAB KR. SUR AND ORS.

Citation: 2003 INSC 217
Decided: 4 April 2003
Disposal: Appeal(s) allowed
Bench: K G BALAKRISHNAN

Holding

The Supreme Court held that the High Court exceeded its jurisdiction; the exemption under Section 20 and the confirmation of sale were void as the Companies Act’s scheme provisions were not complied with, the repeal Act does not apply to West Bengal without adoption, and pendency of Companies Act proceedings does not bar the Urban Land Act’s operation.

Summary

The State of West Bengal appealed against a Calcutta High Court order that granted exemption under Section 20 of the Urban Land (Ceiling and Regulation) Act, 1976 and confirmed the sale of a sick company's excess land to a third party, despite pending winding‑up proceedings under the Companies Act, 1956. The Supreme Court examined whether the High Court had jurisdiction to approve the sale and exemption without complying with the statutory scheme provisions of Sections 391‑394 of the Companies Act. It also considered the effect of the 1999 Repeal Act on the applicability of the Urban Land Act in West Bengal and whether encumbrances barred vesting under Section 10(3). The Court held that the High Court exceeded its jurisdiction, the required Companies Act procedures were not followed, and the repeal does not apply to West Bengal without a resolution under Article 252(2). Consequently, the High Court’s order granting exemption and confirming the sale was set aside and the winding‑up petition was restored to the High Court. Both appeals were allowed.

Issues considered

The High Court's jurisdiction to grant exemption under Section 20 of the Urban Land (Ceiling and Regulation) Act and to confirm the sale of surplus land while winding‑up proceedings under the Companies Act were pending.
Whether the procedural requirements of Sections 391‑394 of the Companies Act were complied with for sanctioning the scheme/sale.
The effect of the Urban Land (Ceiling and Regulation) Repeal Act, 1999 on the applicability of the 1976 Act in West Bengal in view of Article 252(2) of the Constitution.
Whether the pendency of proceedings under the Companies Act bars the operation of the Urban Land Act, considering the overriding effect of Section 42 of the latter.
Whether the existence of encumbrances on the surplus land defeats vesting under Section 10(3) of the Urban Land Act.

Legislation cited

Companies Act, 1956s. 391, s. 391(1), s. 391(2), s. 391(6), s. 392, s. 393, s. 394, s. 394A
Constitution of Indias. Article 252(2)
Urban Land (Ceiling and Regulation) Act, 1976s. 10(3), s. 10(5), s. 20, s. 42
Urban Land (Ceiling and Regulation) Repeal Act, 1999s. 1(2), s. 1(3)

Subjects

Urban Land Ceiling ActCompanies Actexemptionsale of surplus landjurisdictionrepealArticle 252vestingencumbrancepublic interestwinding uprevival of sick industrial unit

Judgment

STATE OF WEST BENGAL AND ORS, A
v.
SRI PRONAB KR. SUR AND ORS.

• APRIL 4, 2003

[K.G. BALAKRISHNAN AND P. VENKATARAMA REDDI, JJ.] B

Urban land (Ceiling and Regulation) Act, 1976-Sections /0(3)(5), 20
and 42-Companies Act, 1956-sections 391and394-Company under debt-
/ts property mortgaged to Bank-Winding up petition by creditor-Declaration C
under land Ceiling Act filed by Company-Application filed to authorities for
exemption of its excess land in order to sell it for payment of its dues and its
revival-Offer by another Company to purchase the vacant land-Application
of exemption rejected by authorities and the land declared to be vested in
State-Writ petition challenging vesting of the land-In company appeal and
lt'rit appeal direction by High Court to State to consider Company's fresh D
application for exemption-Rejection OJ application by State-Confirmation
of sale by High Court holding that exemption liable to be granted/or revival
of induslly and that during proceedings under Companies Act, State not
competent to vest the land-On appeal, held: Confirmation of sale by High
Court was not justified-Order of High Court was beyond its jurisdiction as
procedure provided under provisions of Companies Act facilitating revival of E
the Company and payment of dues to the creditors, and guidelines to exercise
power of exemption of excess land held by sick industrial units not followed
by the Court-Proceedings under Companies Act are not a bar to the
proceedings under land Ceiling Act by virtue of overriding effect of Section
a F
Urban land (Ceiling and Regulation) Act, 1976 [Repealed by Urban
land (Ceiling and Regulation) Act, 1999)-Effect of repealing Act on
applicability of main Act-Jn relation to a State pursuant to whose resolution
the main Act was passed-Held: The repeal Act ipso facto does not result in
the main Act ceasing to apply, unless the Stale adopts the repealing Act by G
resolution passed in that behalf under Article 252(2)-Constitution of India,
1950-Article 252(2).

2nd respondent-Company had filed a declaration under Urban Land
(Ceiling and Regulation) Act. In 1991 the Company totally suspended its H
393
394 SUPREME COURT REPORTS [2003) 3 S.C.R.

A operations on account of financial and marketing problems. The assets of
the Company were mortgaged to the Bank. Bank filed suit for recovery
of money by enforcing the mortgage. Respondent-Company had filed
application u/s 20 of the Land Ceiling Act seeking exemption of excess
vacant land held by it on the ground that part of the vacant land had to
be necessarily sold for discharging the dues and for revival of the
B Company. A creditor of the Company filed a winding up petition before
High Court, wherein the respondent-Company came forward with a
'scheme application' envisaging payment to the creditors by sale of a
portion of the company's land. Company Judge rejected the application
on the ground that the scheme was not feasible as the property was
C mortgaged to the Bank and passed direction for advertisement of winding
up petition.

Company filed an appeal against the order of Company Judge before
Division Bench and the Company placed an offer from 6th respondent-
Company for purchase of the vacant land. Division Bench accepted the
D proposal in view of the fact that according to the proposal all the dues
could be paid and the balance amount could be utilized for revival of the
Company. 6th respondent had approached Government for getting
clearance under the Act; Court directed the Government to pass
appropriate orders in that behalf. The application u/s 20 of the Land
E Ceiling Act was rejected by the Government. Excess vacant land was
determined and notice u/s 10(5) of the Land Ceiling Act was given calling
upon the 2nd respondent to hand over possession of the vested land.

2nd respondent-Company filed writ petition challenging the notice
u/s 10(5) of the Act and a subsequent notice by Calcutta Improvement
F Trust. Single Judge refused to grant interim relief and the Company
preferred writ appeal. Deciding the writ appeal as well as Company
appeal, the Division Bench directed the Government to pass fresh orders
u/s 20 on a fresh application filed by 2nd respondent. State Government
rejected the application u/s 20 by a speaking order. Division Bench
confirmed the sale holding that exemption under the Act could be lawfully
G granted even for the purpose of transferring the land to revive the
industry, that Urban Land Ceiling authorities were not competent to
declare the property as vested in the State and to take possession without
obtaining lea\'e of the Court when proceedings under Companies Act were
pending.

H In appeal to this Ci:-urt, appellant-State contended that High Court
STATE v. PRONAB KR. SUR 395
exceeded its jurisdiction in deciding that the land in question stood A
exempted from the purview of Urban Land Ceiling Act; that acceptance
of the offer of 6th respondent and confirmation of sale in its favour was
illegal and against the accepted norms governing the sale of properties;
. that the guidelines issued by the Government cannot be described as
unknown guidelines because respondent-Company was repeatedly asked B
to follow them; and that the view of High Court that Company Court's
permission was required to proceed under Land Ceiling Act is opposed
to Section 42 of the Act.

2nd respondent-Company contended inter alia that Land Ceiling Act
having been enacted by Parliament in exercise of its power under Article C
252 of the Constitution pursuant to resolutions passed by the Houses of
Legislatures of various States including West Bengal, and the same having
been repealed by Urban Land (Ceiling and Regulation) Repeal Act, 1999,
the repeal ipso facto brings about the result of the Act ceasing to apply in
relation to State of West Bengal; and that if the excess land was subject
to encumbrances, Section 10(3) of the Land Ceiling Act has no application D
and hence the question of vesting does not arise. However, 2nd respondent
could not make it clear whether 6th respondent was still interested to
purchase the land.

The creditor-Bank made. it clear that it would remain outside the
winding up proceedings and pursue the suit filed by it. E

Allowing the appeal, the Court

HELD: I.I. Division Bench out-stepped the limits of its jurisdiction
and passed orders of extraordinary nature. High Court did not refer to
any provision of the Companies Act under which the order in question F
was passed nor did the 2nd Respondent mention any provision under
which the application was filed. The only provision which could possibly
be invoked to pass an order of this nature is Section 394 read with Sections
391 (I) and 392 of the Companies Act. But, there is a definite procedure
prescribed for sanctioning a scheme or arrangement sought to be entered G
into with the creditors and for facilitating the revival of the Company.
Various steps required to be taken by the Court are enumerated in
Sections 391 to 393. Though the Court was exercising special jurisdiction
·under the Companies Act, the relevant provisions were completely
disregarded and the Cot•rt was only guided by its own notions of justice.
·~ The pre-requisites laid down under the Companies .\ct for passing the H
396 SUPREME COURT REPORTS [2003) 3 S.C.R.

A order under Section 391 or 394 cannot be treated as empty formalities
which can be thrown to winds at the whim of the Judge.
1406-D-F, H; 407-A, DI

1.2. The most objectionable part of the impugned order is to consider
one or two offers placed before the Court by the Company without giving
B due publicity. If the peculiar circumstance of the case required that the
normal procedure of calling for bids through advertisement or other
means of publicity was to be dispensed with, the Court should have at least
recorded reasons for the same. But, nothing of that sort was done. The
IJivision Bench should have acted with the awareness that there could be
C no arbitrary selection of the prospective purchaser, even assuming that
an order for sale could be lawfully made. Above all, if the purpose was to
rehabilitate or revive the Company, defiqite proposals for revival should
have been insisted upon and the High Court should have passed
appropriate orders to ensure that the industry was put back on its wheels
and started the production within a time frame, but, the only direction
D given in the order was to pay the amount to the 2nd Respondent-Company
ostensibly for the purpose of restarting the industry. As regards ensuring
proper utilization of that money-nothing is mentioned in the order. No
provision for mm1itoring the revival has been made. At the same time all
the pending proceedings were terminated. 1407-A-Df

E 1.3. The impugned order of the Division Bench cannot also be
sustained in view of the subsequent developments. 6th respondent is no
longer interested in the deal. They have not entered appearance before
this Court though notice was served. 2nd respondent-Company is not in
a position to say that 6th respondent is still interested to purchase the land.
p Secondly, the Bank has made it clear that the bank is no longer agreeable
to abide by the terms agreed to earlier because the accumulated interest
since then would be almost double the amount offered to the Bank in the
year 1996. The Bank further made it clear that it would like to remain
outside the winding up proceedings and pursue the suit filed as long as
back in 199_2. In view of these two developments, it is clear that the
G substratum and underlying basis of the order under appeal has
disappeared and it is no longer possible to give effect to the directions given
by the Division Bench in the Company Appeal. 1407-E-HI

1.4. The order of the High Court in regard to grant of exemption
H under Section 20 of the Urban Land (Ceiling and Regulation) Act, 1976
STA TE v. PRONAB KR. SUR 397
being in a way inter-related to the approval of the sale of vacant land, A
should also fall along with the order passed in purported exercise of
jurisdiction under the Companies Act. That apart, High Court also did
not consider the relevance and effect of the guidelines issued by the State
Government in regard to the exercise of power under Section 20 of the
Land Ceiling Act vis-a-vis excess land held by sick industrial units. High B
Court was not justified in describing them as 'unknown guidelines',
because the orders containing the guidelines were very much on the record
and they were adverted to in the pleadings etc. 1408-B-C)

1.5. It cannot be said that if the excess land was subject to
encumbrances, Section 10(3) of the Land Ceiling Act has no application C
and the question of vesting does not arise. It is precisely for the purpose
of freeing the land of all encumbrances, so as to facilitate absolute vesting,
that sub-section (3) has been enacted. The factum of existence of
encumbrances cannot be pressed into service by the land-holder to prevent
the operation of statutory vesting. 1405-F, G]
D
2. The Land Ceiling Act, enacted by Parliament in exercise of powers
under Article 252 of the Constitution of India pursuant to the resolutions
passed by the Houses of Legislature of various States including West
Bengal, having been repealed by Urban Land (Ceiling and Regulation)
Repeal Act, 1999, it cannot be said that the repeal ipso facto brings about -
0

the result of the.Act ceasing to apply in relation to State of West Bengal, E
in view of the mandate of Article 252(2) of the Constitution. Just as the
Act passed by Parliament became operative in State of West Bengal by
virtue of the adoption of that Act by means of a resolution passed by the
Legislature of West Bengal State, the repeal will be effective only if that
State passed another resolution approving and adopting the repealing Act. F
This legal position is explicitly made clear in the repealing Act itself. In
sub-sections (2) and (3) of Section 1, it is enjoined that the repealing Act
shall apply to such other State which adopts the same by resolution passed
in that behalf under Clause (2) of Article 252. Undisputedly, no such
resolution has been passed by the State of West Bengal so far. Hence the
repeal Act has no application in relation to that State. G
1404-G, H; 405-B-C; F, GI

3. The pendency of proceedings under the Companies Act shall not
be construed to be a bar to give effect to the provisions of the Land Ceiling
Act in view of the overriding effect conferred by Section 42 of that Act. H
•
398 SUPREME COURT REPORTS (2003) 3 S.C.R.

A
1999.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 805-606 of -
From the Judgment and Order dated 5.8.1998 of the Kolkata High
Court in G.A. No. 811197 in W.P. No. 383/97 and A.P.O. No. 21/94 in C.P.
No. 90 of 1992.
B
Bhaskar Gupta, Ms. Radha Rangaswamy, Ms. Ranjeeta Rohtagi for the
Appellants.

Bijan Kumar Ghosh, Ms. Manjula Gupta, Dhruv. Mehta, Mohit
Chaudhary, Mrs. Shalini Gupta and S.K. Mehta for the Respondents.
c
Pronab K. Sur-in-person for the Respondent.

The Judgment of the Court was delivered by

P. VENKATARAMA REDDI, J. Aggrieved by the common order
D dated August 5, 1998 passed by the Division Bench of High Court at Calcutta
in APO No. 21 of I 994 (related to Company Petition No. 90 of 1992) and
GA No. 811 of 1997 (arising out of Writ Petition No. 383 of 1997), the
present appeals have been preferred by the State of West Bengal after obtaining
special leave. The order in question has been purportedly passed in exercise
of two jurisdictions-one under the Companies Act and the other under Writ
E jurisdiction. In sum and substance, the High Court set aside the order of the
State Government rejecting the 2nd Respondent Company's application for
exemption under Section 20 of the Urban Land (Ceiling and Regulation) Act
(hereinafter referred to as the 'ULC Act'), directed the Special Officer,
appointed by the Court to transfer and hand over the vacant possession of
F 300 cottahs of land declared surplus under the ULC Act to the 6th respondent
on receipt of Rs. 3. 90 crores and laid down the modalities of utilization of
the said amount for the revival of the 2nd Respondent-Company.

The case has a long history. Certain essential facts need narration to
come to the grips of the issue involved. In the year 1976, the 2nd Respondent
G by name Sur Enamel & Stamping Works (Private) Ltd. (hereafter referred to
as 'Company'), filed a declaration under the ULC Act. In the year 1991, the
Company totally suspended its operations on account of financial and
marketing problems. It may be stated that the assets of the Company viz. the
factory building, plant and machinery, contiguous land etc. were mortgaged
H to United Bank of India through equitable mortgage and the Bank filed a suit
STATE v. PRONAB KR. SUR [REDD!, .1.) 399
in the year 1992 for recovery of money by en~orcing the mortgage. The A
Company filed an application under Section 20 ULC Act on 18. 6. 1991
seeking exemption of excess vacant land held by it on the ground that part
of the vacant land had to be necessarily sold for discharging the dues and for
revival of the Company. As the things stood thus, a creditor of the Company
by name Eastern Coal Agency, filed Company Petition No. 90of1992 in the B
High Court of Calcutta for winding up the Company on the ground of its
inability to discharge the debts. The said petition was admitted on 16th March,
1992. However, further proceedings including advertisement were stayed
subject to the condition of the Company paying the amount due to the creditor
in instalments. The instalments could not be paid by the Company as directed.
While so, the Company came forward with a 'scheme application' purportedly C
under Sections 391(1) & 391(6) of the Companies' Act. The scheme envisaged
payment being made to the creditors by sale of a portion of the Company's
land measuring 20 bighas. The learned Judge dealing with the Company
Petition rejected the application by an order dated 22. 12. 1993 on the ground
that the property was mortgaged to the Bank and the scheme was not feasible.
Simultaneously, directions were given for advertisement of the winding up D
petition. At this stage, we may mention that this order of the learned Company
Judge has been wrongly referred to in the pleadings of both the parties as an
order directing winding up of the Company. Moreover, in the judgment under
appeal, the learned Judges wrongly assumed that the order dated 22. 12. 1993
was passed on the application of one of the creditors to sell the property. We E
would like to clarify that the question of sale did not arise at that stage
because the winding up petition was still under adjudication. We have already
indicated the nature of application filed before the Company Judge, on a
perusal of the original record of the High Court.

Against the order dated 22.12.1993 passed in the Company Application, F
an appeal was preferred before the Division Bench, which is A. P. 0. No. 21
of 1994. The Company placed before the Division Bench an offer from the
6th Respondent, namely, Chatterjee Management Services (P) Ltd. (hereinafter
referred to as the 'CMS Ltd. ') to purchase 15 bighas of vacant land at the
consolidated price of Rs. 3.90 crores provided it was transferred free from all
charges and encumbrances and necessary permissions/approvals from the G
Court. secured creditors and the Urban Ceiling authorities were obtained. The
Company prayed for confirmation of proposed sale of approximately 20,000
square metres to C.M.S. Ltd. The Division Bench of the High Court noted
that according to the proposal of C.M.S. Ltd., the dues to the Bank and other
creditors will be cleared and arrears of salaries to workmen will be paid and H
400 SUPREME COURT REPORTS [2003) 3 S.C.R.

A the balance of about one crore could be utilized by the Company for revival
of industry. The said proposals of the Company and C.M.S. Ltd. were accepted
by the Division Bench by an order dated 16.1.1996. The learned Judges
observed:

"Considering the facts and circumstances of the case we accept and
B confirm the offer of Chatterjee Management Services (P) Ltd. in view
of the fact that the State is facing acute unemployment problem and
here is an industrialist who has come forward with an offer, which
appears to be a very much lucrative and which will serve the interest
of the workmen as also to liquidate the creditor's dues, namely, Bank's
dues, and when all the interested parties supported this without any
c qualification, this is also in public interest to accept the said offer. "

On 4.2.1997, the Division Bench passed a further order in the Company
Appeal. The Court, having noted that CMS Ltd. had approached the State
Government for getting clearance under ULC Act, directed the State
D Government to pass appropriate orders in that behalf.
•
Taking the cue from the proceedings in Company Appeal, the 2nd
Respondent Company filed writ Petition No. 383 of 1997 challenging the
notice issued under Section 10(5) of the ULC Act and the subsequent notice
issued by the Calcutta Improvement Trust. Direction was sought to restrain
E the authorities concerned from giving effect to the 'vesting order'. By that
time, the application filed under Section 20 of the ULC Act was rejected by
the State Government by an order dated 6.2.1995. Thereafter, various steps
were taken under the ULC Act. The excess vacant land was finally determined
as 19,904 sq. meters. Notification under Section I 0(3) was published on
24.7. I995. Notice under Section I 0(5) calling upon the 2nd Respondent to
F hand over the possession of the vested land was given on 15.9.1995. On 2.
I I .1995, the possession of the vested land was taken over according to the
appellants though the 2nd Respondent denies the same. Reverting back to the
Writ Petition filed in February, I997, it appears that the learned Single Judge
while directing the Writ Petition to be posted for orders after two weeks,
G declined to grant interim relief on the ground that no urgency was made out.
Aggrieved by this order dated 24.2. I997, the Company preferred Letters
Patent Appeal which is GA No. 81Iof1997. It appi:ars that the writ petition
was assigned for disposal to the Bench hearing the Company Appeal.

On 15.4.1997, the Division Bench passed an order in A.P.O. No. 2 I of
H 1994 a~ well as GA No. 811 of 1997 directing the State Government to pass
STATE v. PRONAB KR. SUR [REDDI, J.] 401
a fresh order under Section 20 on a fresh application filed by the 2nd A
Respondent Company. The State Government was required to take decision
within four weeks from the date of receipt of application. The High Court
indicated that the fresh decision should be taken according to law, keeping
in view the judgment of the Supreme Court in T.R. Thandur v. Union of
India, JT (1996) 4 SC 14 and in the light of the 'Project Report' submitted B
before the Court pursuant to the offer of CMS Ltd. and also the existing State
policy. The High Court observed that "it is expected that the Government
shall consider and give due weight to the project which Mr. Mukherjee's
client wants to implement in the light of the policy decision already taken by
the State Government and the decision of the Supreme Court mentioned
above. " The State Government, on consideration of the representation, passed C
a speaking order rejecting the application under Section 20 on 30.7.1997.
The Government referred to the decision of the Supreme Court and proceeded
to consider the question from the angle of undue hardship and public interest.
In doing so, the State Government placed strong reliance on certain guidelines
issued by the State Government in regard to the surplus land held by sick
industrial units. The Government was also of the view that, on account of D
vesting order, the grant of exemption would not be in accordance with law.
This order passed under the ULC Act had created a stalemate in regard to
implementation of the proposals submitted by CMS Ltd. which received the
approval of Division Bench. The Division Bench heard arguments on the
legality of the order passed by the State Government refusing the exemption E
and rendered the impugned judgment in the two matters before it. That is
how the SLPs came to be filed by the State, leading to these appeals. This
Court, passed an interim order on 14.02.2000 directing the Official Liquidator,
Calcutta High Court to make an inventory of all the assets and to ensure and
safeguard the said assets lying at 21, Sil Lane and 24 Christopher Road,
Calcutta and to submit a report. F

The findings arrived at and the directions issued by the High Court in
the judgment under appeal are to be noted. The High Court was of the view
that the sale of vacant land, not required for the purpose of the Company in
)
favour of CMS Ltd., would not only serve the Company's interest but also G
J?Ublic interest. The High Court observed that the creditors' dues as well as
the workmen's dues could be cleared and the Company will be able to restart
the industry thereby providing employment to a large number of workers,
while at the same time, CMS Ltd. would be setting up a software development

-
park which is 'unique in its character'. Referring to the decision of this Court
in Thandur's case (1996) JT 4 SC Page 14, the High Court observed that the H
402 SUPREME COURT REPORTS [2003) 3 S.C.R.

A exemption under U.L.C. Act could be lawfully granted even for the purpose
of transferring the land to revive the industry. The High Court did not agree
with the stand taken by the State Government that the power of exemption
cannot be exercised after vesting of the land. The High Court pointed out that
in any case the possession of the land was not taken and, therefore, the
B Company was still 'holding' the land. The High Court then questioned the
competence of the ULC authority to declare the property as vested in the
State and to take possession, without obtaining leave of the Court when
proceedings under the Companies Act were pending. The High Court made
a comment that the law laid down by the Supreme Court in Thandur 's case
(supra) was 'simply ignored' by the Government in refusing the exemption.
C The further comment was that the proposal given by CMS Ltd. was not kept
in view and the Government chose to follow "some unknown existing
guidelines". The High Court then held as follows:

" ... Accordingly, in our view, it was a fit and a proper case where
exemption ought to have been granted and the exemption was rejected
D on an existing Government policy without disclosing what is the
policy and on the contrary the policy of the Government is to further
the interest of the public and to industrialise the State to mitigate the
hardship of the unemployed people. The reasons given herein cannot
stand and accordingly, this Court has no other option but to hold that
E the property stood exempted as it fulfills all the conditions laid down
in Section 20 and it also fulfils the decision of the Supreme Court in
the case of T.R .. Thandur (supra) and it also ensures the social and
economic justice ... "

The High Court ultimately held that the twin considerations of undue hardship
F and public interest are satisfied in the instant case.

Coming t<:> the operative part of the order, the High Court reiterated the
confirmation of sale by its order dated 16.1.1996 in favour of CMS Ltd. for
a consideration of Rs. 3.90 crores. The Company was permitted to sell 300
cottahs of land delineated in the annexed Plan for the sale price of Rs. 3.90
G crores. Out of the said amount, the Company (appellant before the High
Court) was directed to pay Rs. 1.80 crores to the United Bank of India as per
the settlement terms, 60 lakhs to the workmen and the actual amount payable
to Eastern Coal Agency. The Company was also required to pay the statutory
dues and taxes. The balance amount was directed to be utilized for
H rehabilitation of the Company. The time schedule for payment of the amount
-
STATE v. PRONAB KR. SUR [REDDI, J.] 403
by CMS Ltd. was set out for the purpose of implementation of the order and A
two advocates were appointed as Special Officers, whose fee was liable to be
paid by the Company. The concerned authorities were directed to register the
Deed of Transfer without insisting on no objection certificate under Section
269 U.D. (i) of LT. Act or no objection certificate from the U. L. C. authorities.
The Municipal officials were directed not to insist on no objection certificate B
from the Urban Land Ceiling authorities. It was also declared that on payment
of Rs. 3. 90 crores, as per the time schedule, the ownership and interest of
the Company in the property shall absolutely vest in CMS Ltd. free from all
encumbrances and lien and the nominated Special Officer shouid handover
the possession to CMS Ltd. The concluding part of the order is also important:

"By this order all proceedings including the writ application, writ
c
appeals filed against the Urban Land Ceiling Authorities as well as
Liquidation Proceedings and the appeal filed in connection therewith
stands finally disposed of. "

With reference to the findings and directions of the High Court in D
regard to transfer of vacant land to CMS Ltd. and on the issue of grant of
exemption under Section 20 of U.L.C. Act, the learned senior counsel
appearing for the appellant-State criticized the judgment on various counts.
It is submitted that there are definite guidelines for disposal of and dealing
with the excess vacant lands under the ULC Act held by the sick industriaf
units and such guidelines have been evolved primarily for the purpose of E
rehabilitation of the sick unit. If the application is made in terms of the
guidelines, a high powered committee will deal with the matter and monitor
the process of revival. Such orders were issued by the Government on 22nd
December, 1989 and 26th November, 1992. The latest order on the subject
is dated 6th January, 1998 (which is subsequent to the rejection order of F
Government). The Respondent-Company was repeatedly advised to follow
those guidelines. The Company was well aware of those orders of the
Government as seen from the pleadings and annexed documents before the
High Court. They were very much available when the case was heard by the
High Court; yet the High Court described them as 'unknown guidelines'. It
is pointed out that the Company did not come forward with any concrete G
rehabilitation package. The learned senior counsel further contended that the
view of the High Court that Company Court's permission was required to
proceed under ULC Act is opposecj to Section 42 of the Act. The learned
counsel then commented that the High Court went wrong in holding that the
ratio of the decision in Thandur's case (supra) was not kept in view. It is also H
404 SUPREME COURT REPORTS [2003) 3 S.C.R.

A contended that the High Comi proceeded on a ·wrong assumption that the
possession of the excess land was not taken over. Above all, it is submitted
that the High Court exceeded its jurisdiction in declaring that the land in
question stood exempted from the purview of ULC Act on its own conception
of public interest and undue hardship and such approach cannot be legally
sustained. Moreover, it is argued that the acceptance of offer of CMS Ltd.
B and the 'confirmation of sale' in favour of that party is without jurisdiction
and against the accepted nonns governing the sale of properties. The directions
given to various authorities were in the teeth of statutory provisions.

The learned counsel for the 2nd Respondent-Company contended that
C the exemption was arbitrarily refused, the observations made by the
Government that there was no undue hardship and public interest are perverse
and equally so the finding that the exemption application cannot be entertained
after the vesting order. It is submitted that the applications for exemption
were filed even before the vesting order was issued and the latest application
filed pursuant to the order of the Court was only in continuation of the
D previous applications. It is asserted that the actual/physical possession of the
land has not been taken over inasmuch as the orders of the ULC authorities
were stayed by the High Court. It is further submitted that the reasons given
by the High Court for the grant of exemption are well founded and the High
Court had ample jurisdiction to approve the scheme submitted by the Company
E pending the appeal. Reliance has been placed on Para 20 of the decision in
Muthulakshmi Achi v. Meenakshi Achi and Ors., [1993] Suppl. 4 SCC 658
wherein direction to grant exemption was issued on the peculiar facts of the
case.

Two other legal submissions have been made by the learned counsel
F for the Company which, in our view, are liable to be rejected outright. These
extreme contentions should not cloud the real issue for consideration when
the matter goes back to High Court. Hence we consider it appropriate to deal
with these contentions at this stage itself. Firstly, it is submitted that ULC Act
was enacted by the Parliament in exercise of its legislative powers under
Article 252 pursuant to the resolutions passed by the Houses of Legislatures
G of various States including West Bengal. The Parliament repealed the said
Act by the Urban Land (Ceiling and Regulation) Repeal Act, 1999 and the
repeal ipso facto brings about the result of the Act ceasing to apply in relation
to State of West Bengal. This contention cannot be sustained in view of the
mandate of Clause (2) of Article 252 which reads:
H "Any Act so passed by Parliament may be amended or rt>oealed by
I

STATE v. PRONAB KR. SUR [REDDI, J.) 405
an Act of Parliament passed or adopted in like manner but shall not, A
as respects any State to which it applies, be amended or repealed by
an Act of the Legislature of that State. "
-'
The words 'adopted in like manner' are significant. Just as the ULC
Act passed by Parliament became operative in State of West Bengal by virtue
of the adoption of that Act by means of a resolution passed by the Legislature B
of West Bengal State, the repeal will be effective only if that State passed
another resolution approving and adopting the repealing Act. This legal
position is explicitly made clear in the repealing Act itself. In sub-sections
(2) and (3) of Section I, it.is enjoined that the repealing Act shall apply to
such other State which adopts the same by resolution passed in that behalf C
under Clause (2) of Article 252. Undisputedly, no such resolution has been
passed by the State of West Bengal so far. Hence the repeal Act has no
application in relation to that State. In that view, there is no need to consider
the effect of saving provisiort.in the repeal Act, which prima facie, appears
to be another hurdle for the respondent.
D
Another point urged by the learned counsel for the Respondent -
Company is that the land and other property of the Company had been
mortgaged to the Bank and, therefore, it is not free from encumbrances, in
which case Section 10(3) of the Act has no application. Section 10(3) of the
ULC Act provides for vesting of the excess vacant land (referred to in the
notification published under sub-Section I) in the State Government free E
from all encumbrances with effect from the specified date. The learned counsel
submits that if the excess land was subject to encumbrances, Section 10(3)
has no application and the question of vesting does not arise. This contention
is absolutely devoid of merit and the interpretation which is sought to be
given by the learned counsel distorts the meaning and purpose of Section p
I0(3). It is precisely for the purpose of freeing the land of all encumbrances,
so as to facilitate absolute vesting, that sub-section (3) has been enacted. The
factum of existence of encumbrances cannot be pressed into service by the
land-holder to prevent the operation of statutory vesting.

We now'come to the crux. of the issue arising in the case: It is evident G
from the narration of facts that the offer made and the proposals submitted
by the 6th Respondent (CMS Ltd. ) formed the basis of the order passed by
the Division Bench of the High Court. It cannot be gainsaid that to a substantial
extent, the said proposals which received the imprimatur of the Court, largely
influenced the Division Bench in holding that the Company was entitled to H
406 SUPREME COURT REPORTS (2003] 3 S.C.R.

A get exemption under Section 20 of the ULC Act. True, certain reasons given
by the High Court in concluding that the refusal of exemption was illegal can
be dissociated from the question of acceptance of the proposals submitted by
the Company backed up by the offer of CMS Ltd. ; but, the impact of the
offer made by CMS Ltd. on the decision taken in regard to exemption under
B ULC Act is indelible. In fact, the holding of the Division Bench that the
excess land ought to have been exempted was in the context of effectuating
the said proposal accepted by the Court. This, apparently, is the reason for
passing a combined order. Therefore, we deem it appropriate to consider, in
the first instance, whether the acceptance of the proposal involving the sale
of the Company's surplus land to CMS Ltd. and the consequential directions
C issued by the High Court are supportable in law and, at any rate, whether the
directions of the High Court can be given effect to at all at this point of time,

The aforesaid question calls for a discussion on the jurisdiction of the
Court to pass an order approving the proposed sale as well as the propriety
of such order. Coming to the first aspect, it is difficult to comprehend, under
D what jurisdiction the Court had passed the order and issued the directions
referred to supra. The High Court did not refer to any provision of the
Companies Act under which the order in question was passed nor did the 2nd
Respondent mention any provision under which the application was filed.
The only provision which could possibly be invoked to pass an order of this
E nature is Section 394 read with Sections 391 (1) and 392 of the Companies
Act. But, there is a definite procedure prescribed for sanctioning a scheme or
arrangement sought to be entered into with the creditors and for facilitating
the revival of the Company. Various steps required to be taken by the Court
are enumerated in Sections 391 to 393. Section 394A obligates the Court to
give notice of every application under Section 391 or 394 to the Central
F Government and the Court shall take into consideration the representation, if
any, made by the Government before passing the order. Admittedly, this was
not done. None of the creditors except the secured creditor, namely, the
United Bank of India and Eastern Coal Agency, which filed the winding up
petition, were involved in the so called arrangement or scheme. It does not
G appear that the latest financial position or the report on the accounts of the
Company was placed before the Court as required by the proviso to Section
391(2). Though the Court was exercising special jurisdiction under the
Companies Act, the relevant provisions were completely disregarded and the
Court was only guided by its own notions of justice. The pre-requisites laid
down under the Companies Act for passing the order under Section 391 or
H 394 cannot be treated as empty fonnalities which can be thrown to winds at
STATE v. PRONAB KR. SUR [REDD!, J.] 407
the whim of the Judge. The most objectionable part of the impugned order A
is to consider one or two offers placed before the Court by the Company
without giving due publicity. If the peculiar circumstances of the case required
that the normal procedure of calling for bids through advertisement or other
J means of publicity was to be dispensed with, the Court should have at least
rec.orded reasons for the same. But, nothing of that sort was done. The Division
Bench should have acted with the awareness that there could be no arbitrary B
selection of the prospective purchaser, even assuming that an order for sale
could be lawfully made. Above all, if the purpose was to rehabilitate or
revive the Company, definite proposals for revival should have been insisted
upon and the High Court should have passed appropriate orders to ensure
that the industry was put back on its wheels and started the production within c
a time frame, but, the only direction given in the order was to pay the amount
of one crore or so to the 2nd Respondent-Company ostensibly for the purpose
of restarting the industry. How to ensure proper utilization of that money -
nothing is mentioned in the order. No provision for monitoring the revival
has been made. At the same time all the pending proceedings were terminated.
There can be no doubt that the Division Bench out-stepped the limits of its D
jurisdiction and passed orders of extra-ordinary nature.

The other important reason why the impugned order of the Division
Bench cannot be sustained is the subsequent developments that have taken
place. It appears that CMS Ltd. (6th Respondent) is no longer interested in
E
the deal. They have not entered appearance before this Court though notice
was served. The learned counsel for the 2nd Respondent-Company is not in
a position to say that CMS Ltd. is still interested to purchase the land. Secondly,
the learned counsel for United Bank of India has made it clear that the bank
is no longer agreeable to abide by the terms agreed to earlier under which the
bank had to receive Rs. I. 80 crore in full settlement of their claim. The F
learned counsel appearing for the Bank has contended with justification that
it would be imprudent on the part of the Bank to now accept the sum which
was offered about 7 years back. The accumulated interest since then would
be almost double the amount offered to the Bank in the year 1996. The
learned counsel further made it clear that the Bank would like to remain
outside the winding up proceedings and pursue the suit filed as long as back
G
in 1992. In view of these two developments, we are of the view that the
substratum and underlying basis of the order under appeal has disappeared
and it is no longer possible to give effect to the directions given by the
..,.. Division Bench in the Company Appeal. For all these reasons, the order
passed in the Company Appeal is liable to be set aside. H
408 SUPREME COURT REPORTS [2003] 3 S.C.R.

A The Company Petition No. 90 of 1992 will be restored to the file of
High Court and the learned Company Judge will be free to deal with the
Petition and the applications, if any, filed therein in accordance with law.

As already observed, the order of the High Court in regard to grant of (,

exemption under Section 20 of the U.L.C. Act being in a way inter-related
B to the approval of the sale of vacant land, should also fall along with the
order passed in purported exercise of jurisdiction under the Companies Act.
That apart, there is an additional reason why we are inclined to set aside the
order of the High Court on this aspect. The High Court did not consider the
relevance and effect of the guidelines issued by the State Government in
C regard to the exercise of power under Section 20 vis-a-vis excess land held
by sick industrial units. The High Court was not justified in describing them
as 'unknown guidelines', because the orders containing the guidelines were
very much on the record and they were adverted to in the pleadings etc. We
are not expressing any view on the question whether the application under
Section 20 of ULC Act should be dealt with solely from the point of view
D of the guidelines. We are also refraining from expressing any view on the
question of validity of those guidelines in the light of Section 20. These are
all questions to be decided by the High Court to the extent they are considered
necessary and relevant for adjudication of the writ petition. Whether or not
it is a fit case for grant of exemption at least in respect of part of the land
E so as to facilitate the discharge of workers' salaries and statutory dues is also
a matter which the High Court may consider, if necessary. It is, however,
made clear that the pendency of proceedings under the Companies Act shall
not be construed to be a bar to give effect to the provisions of ULC Act in
view of the over-riding effect conferred by Section 42 of that Act.

p Accordingly, we set aside the impugned order of the High Court in
regard to its finding and declaration on the point of e~emption under Section
20 of ULC Act. Writ Petition 383 of 1997 shall be restored to the file of the
High Court and the same be dealt with by a Division Bench expeditiously.

Both the appeals are allowed accordingly. We make no order as to
G costs.
K.K.T. Appeals allowed.

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