IN THE HIGH COURT OF KARNATAKA AT...
Transcript of IN THE HIGH COURT OF KARNATAKA AT...
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF JUNE, 2017
BEFORE
THE HON’BLE DR JUSTICE VINEET KOTHARI
COMPANY APPLICATION NO.184/2015
IN COMPANY PETITION NO.154/2002
Between:
Government of Karnataka Secretariat, Vidhan Soudha Bengaluru-560001 Represented by Karnataka State Industrial and Infrastructure Development Corporation (KSIIDC) Khanija Bhavan 49, 4th Floor, East Wing Race Course Road, Bengaluru-560 001. ... Applicant (By Mr. K.G. Raghavan, Senior Counsel for Mr. Saji P. John and Smt. B. Rajashree, Advocates) And: NGEF Limited (in liquidation) Represented by the Official Liquidator Attached to the High Court of Karnataka “Corporate Bhavan”, No.26-27, 12th Floor Raheja Towers, M.G. Road, Bengaluru-560 001. ... Respondent (By Ms. Revathy Adinath Narde, Advocate for Official Liquidator Mr. R.V.S. Naik, for King & Partridge, Advocate for German Company - EHG)
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This Company Application is filed under Section 466 of the Companies Act read with Rules 6 and 9 of the Companies (Court) Rules 1959, praying to recall the winding up Order dated 03-08-2004, in the interest of justice and equity.
This Company Application coming on for Orders this day, the Court made the following:
O R D E R Mr. K.G. Raghavan, Senior Counsel for Mr. Saji. P. John & Smt. B. Rajashree, Advocate for Applicant - State Ms. Revathy Adinath Narde, for Official Liquidator Mr. R.V.S. Naik, for King & Partridege, for German Company -EHG.
1. By this order, the Company Application No.184/2015
filed in Co.P.No.154/2002 between Government of Karnataka
vs. NGEF Ltd., (in liquidation) is being disposed of.
2. The said application has been filed by the State
Government under the provisions of Section 466 of the
Companies Act, 1956 r/w Rules 6 and 9 of the Companies
(Court) Rules, 1959, seeking the recall of the Winding Up
order dated 03.08.2004 passed by this Court, on the
recommendation of BIFR dated 02.08.2002 under Section
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20(1) of the Sick Industrial Companies (Special Provisions)
Act, 1985.
3. It has been stated in the said Company Application
No.184/2015 that the State Government has 90.28%
shareholding of the Respondent Company-NGEF Ltd., and the
only other shareholder is M/s.Allgemeine Elektricitats -
Gesellschaft Aktiengesellschaft, now known as ‘EHG
Elektoholding GmbH (EHG) (‘German Company’ for short)
which held 9.72% of its shareholding.
4. The reasons stated in the said application and as
canvassed before this Court by Mr.K.G.Raghavan, learned
senior counsel appearing for the applicant-State of Karnataka
are that after passing of the said winding up order on
03.08.2004, in the process of winding up, upon the sale of
some of the assets of the Company, now the process of paying
back all the secured and unsecured creditors including the
workmen has been completed and all the secured and
unsecured creditors have been fully paid to their satisfaction,
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barring the claim of a miniscule few of the ex-workmen,
whose writ petitions were pending in this Court for their claim
for enhanced salary and wages and who are now represented
by Mr.Rajesh, the learned counsel for the workmen. The
major asset of the Company being the huge chunk of land of
about 221.125 acres of land situated in the prime location of
the city of Bangalore, and out of which, after sale/acquisition
of some part of it along with other assets, now 119.665 acres
of land still remains in the custody of the Official Liquidator
attached to this Court. The Company entered into One Time
Settlement with the Secured creditors viz., a consortium of
Banks and a sum of Rs.80 crores under the G.O.No.CI 33
CEL 2006 dated 26.03.2008 and G.O.No.CI 33 CEL 2010
dated 26.03.2008 was paid to them, comprising of 8 banks
led by the State Bank of Mysore and State Bank of India.
These details are given in Annexure-A1 of the said Company
application.
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5. The VRS scheme was offered to the workmen and the
said scheme was monitored by the Nodal Agency namely
KSIIDC and they were paid of under the settlement with the
workmen and orders in this regard were passed by this Court
on 15.07.2016 in C.A.No.278/2016 in Co.P.No.154/2002 in
respect of the respondent- Company and the dues of
Rs.22,46,71,526/- were paid of to these 90 workmen out of
120 workmen under the said settlement.
6. The applicant-State of Karnataka in para-17 of the
said Company application has categorically stated before this
Court that part of the said chunk of land, which belonged to
the Company has already been acquired by State and utilized
for public projects like that of BMTC, KSRTC and Metro Rail
projects etc. and upon acquisition of that part of the land, for
which the compensation payable to the Company has been
received to the extent of Rs.59 crores, out of the total
compensation awarded by the competent authority to the
extent of Rs.116,32,62,740/-, a sum of Rs.59,50,52,640/-
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has been received and the balance sum of Rs.67,15,52,335/-
is yet to be received.
7. The OLR No.85/17 is filed in the present
C.A.No.184/15 on 26.05.2017 and paragraphs 7 and 8
thereof indicates that a sum of Rs.113.42 crores is lying
deposited in the Banks and small amount of Rs.4,605/-as
Cash-in-hand. The State Government in the said
C.A.No.184/15 has categorically stated in para-17 that the
remaining land of 119.665 acres would be utilized only for the
public purpose viz., for implementation of infrastructure
projects in public interest. Paragraph-17 of the said affidavit
dated 09.03.2015 filed by the Managing Director of KSIIDC,
the Nodal Agency, Mr.Naveen Raj Singh, IAS s/o late
Rajkumar Verma, is quoted below for ready reference:-
“17. I submit that, the crown jewel of the
Company is the immovable properties situated at
Bengaluru. The State had originally acquired the
property during 1959 for the purpose of
establishing of New Government Electrical Factory
(NGEF), subsequent to which the same was
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transferred in to the Company in liquidation.
Presently, the land measures 119.665 acres and is
situated in the heart of the city. Further, by having
integrated transport project in the adjacent land by
BMTC, KSRTC and the Metro pursuant to
acquisition of land which belong to the Company,
there is an escalation in the value of the properties.
The remaining land can be better utilized by the
Applicant for implementation of infrastructure
projects in public interest”.
Paras 7 and 8 of the OLR No.85/2017 are also quoted
below:
“7. That relying on the Affidavit filed by the
Special Land Acquisition Officer before this Court it
appears that an extent of land measuring 50.36
acres belonging to the Company (in Liqn.,) was
acquired by Bangalore Metro Rail Corporation
Limited under the land acquisition proceedings and
a total compensation for a sum of
Rs.116,32,62,740/- was allowed and till date they
have transferred only a sum of Rs.59,50,52,640/-
to the Company (in Liqn.,) and the balance payable
is Rs. 67,15,52,335/-. In this regard, an
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application before the Special Land Acquisition
Officer for recovery of balance compensation
amount is still pending for orders.
8. That as on 17-05-2017 the fund position
of the Company (in Liqn.,) is as below:
Cash in hand - Rs. 4,605/-
Bank - Rs. 7,05,40,810/-
Fixed Deposits - Rs. 1,06,36,91,638/-
Rs. 1,13,42,32,448/-”
8. The learned Senior Counsel upon query of the Court,
on specific instructions has categorically stated before the
Court that the said land of 119.665 Acres in question will not
be sold to private parties by way of public auction or
otherwise and shall be utilized only for public purposes. The
learned senior counsel for the applicant-State has specifically
submitted that after about 13 years of passing of the winding
up order dated 03.08.2004, the Company (in liquidation) is
now seeking revival and in the circumstances of the case now
obtaining, the said winding up order deserves to be recalled
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or stayed permanently, so that, the remaining land of
119.665 acres and some other minor assets still in the
possession of the Official Liquidator can be utilized for the
larger public interest and the Company deserves to be
revived, since all the creditors stand paid and there is no
objection to its revival and recall of the winding up order
except from the side of the minority shareholder, the German
Company, which has no locus or reason to object to it nor its
objection is valid on merits.
9. The Official Liquidator has filed OLR No.85/17 in this
Court on 26.05.2017 in response to the said
C.A.No.184/2015, clearly stating therein that the Official
Liquidator has no objection to the recall or stay of the said
winding up order dated 03.08.2004 and in the said OLR, they
have given status of the sale of assets and the repayment of
all the creditors by now.
The learned counsel for Official Liquidator Ms.Revathi
Adinath Narde in the presence and upon instructions of the
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Deputy Official Liquidator, Ms.Latha Parimala Vadan, has
also submitted before the Court that some of assets of the
Company are situated outside the State of Karnataka and
some silver items are still in the possession of the Official
Liquidator for which they had filed OLR No.369/15 in this
Court and OLR No.139/16, in which the details of these
assets are given for seeking appropriate direction from this
Court.
10. No creditor of the Company has raised any
objection to the stay or recall of the winding up order. The
only objection put forth before this Court is by the minority
shareholder-the German Company (EHG) represented by
learned counsel, Mr.R.V.S. Naik, who vehemently opposed
the recall of the winding up order on the ground that Section
466 of the Companies Act, 1956, does not provide for any
such recall of the winding up order by this Court and even for
staying the winding up process under Section 466, there are
no circumstances calling for such an order by this Court.
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11. The learned counsel for the German Company
Mr.Naik has placed strong reliance on the decision of the
Hon’ble Supreme Court in the case of Meghal Homes (P)
Ltd., vs. Shree Niwas Girni K.K.Samiti & Others [(2007)7
SCC 753], paragraphs 46 to 52 thereof and submitted that
unless a proper scheme for revival is placed before the Court
for consideration, no such revival can be permitted or ordered
in the present case. Paras 46 to 52 are quoted below:-
“46. We may straightway notice that this Court did not have occasion to consider whether any additional tests have to be satisfied when the Company concerned is in liquidation and a
compromise or arrangement in respect of it is proposed. Therefore, it cannot be said that this would be the final word on any scheme put forward under Section 391 of the Act, whatever be the position of the Company concerned. Even then, this discretion lays down the need to conform the
statutory formalities, the power of the Court to ascertain the real purpose underlying the scheme, the bona fides of the scheme, the good faith in propounding it and that as a whole, it is just, fair and reasonable, at the same time
emphasizing that it is not for the Court to examine the scheme as if it were an appellate authority over the commercial wisdom of the majority.
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47. When a Company is ordered to be wound
up, the assets of it, are put in possession of the Official Liquidator. The assets become custodia legis. The follow up, in the absence of a revival of the Company, is the realization of the assets of the Company by the Official Liquidator and distribution of the proceeds to the creditors, workers, and contributories of the Company ultimately resulting
in the death of the Company by an order under Section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the Court has necessarily to see whether the Scheme contemplates revival of the business of the Company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529A of the Act. Of course, the Court has to see to the bona fides of the scheme
and to ensure that what is put forward is not a ruse to dispose of the assets of the Company in liquidation.
48. In fact, it was on this basis that the Division Bench of the High Court proceeded when it passed the order dated 4.4.1995. Apart from the fact that the correct principle was adopted, the
directions therein are binding on the Company Court and the Division Bench of the High Court of coequal jurisdiction when the proposal for amendment of the earlier scheme came up. It has to be noted that it was not a fresh scheme that was being mooted, but it was a proposal for
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an amendment of the scheme already considered by the Division Bench when it passed the order dated 4.4.1995. It was the plain duty of
the Division Bench on the latter occasion to keep in focus the suggestions earlier made.
49. It was argued before us on behalf of the appellant that Sections 391 to 394A were procedural provisions and when once a Company was under liquidation, the Chapter dealing with winding up applied and the only provision or
substantive provision conferring power of stopping the winding up was conferred on the court by Section 466 of the Act, and unless the court is satisfied that the Company is being taken out of liquidation by way of revival and that it will sub-serve public interest and will conform to commercial morality, the court cannot accept a scheme proposed under Section 391 of the Act. The argument on the side of the respondents is that Section 391 is a self-contained code and read with Section 392 of the Act, which
was peculiar to our Act, it was clear that a Company Court could approve, independently of Section 466 of the Act, a scheme and could take the Company out of liquidation and even
pass an order of stay in terms of Section 391 read with Section 392 of the Act. Section 466 of the Act was not attracted when a scheme approved by the shareholders, creditors, members of the Company and so on was put forward before the Company Court.
50. It is a well settled rule of interpretation
that provisions in an enactment must be read as a whole before ascertaining the scope of any particular provision. This Court has held that it is a
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rule now firmly established that the intention of the legislature must be found by reading the statute as a whole. In Principles of Statutory Interpretation by Justice G.P. Singh, it is stated:
"The rule is referred to as an "elementary rule" by VISCOUNT SIMONDS; a "compelling rule" by LORD
SOMERVELL OF HARROW; and a "settled rule" by B.K. MUKHERJEE, J."
(See pages 31 and 32 of the Tenth Edition) When we accept this principle, what we have to do is to read Sections 391 to 394A not in isolation as canvassed for by learned counsel for the respondents, but with reference to the other relevant provisions of the Act.
51. We see no difficulty in reconciling the need to
satisfy the requirements of both Sections 391 to 394-A and Section 466 of the Companies Act while dealing with a Company which has been ordered to be wound up. In other words, we find no incongruity in looking into aspects of public interest, commercial morality and the bona fide intention to revive a Company while considering whether a compromise or arrangement put forward in terms of Section 391 of the Companies Act should be accepted or not. We see
no conflict in applying both the provisions and in harmoniously construing them and in finding that while the court will not sit in appeal over the commercial wisdom of the shareholders of a Company, it will certainly consider whether there is a genuine attempt to revive the Company that has
gone into liquidation and whether such revival is in public interest and conforms to commercial morality.
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52. We cannot understand the decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [(1997) 1 SCC 579] as standing in the way of understanding the scope of the provisions of the Act in the above manner. We are therefore satisfied that the Company Court was bound to consider whether the liquidation was liable to be stayed for a period or permanently while adverting to the question whether the scheme is one for revival of the Company or that part of the business of the Company which it is permissible to revive under the relevant laws or
whether it is a ruse to dispose of the assets of the Company by a private arrangement. If it comes to the latter conclusion, then it is the duty of the court in which the properties are vested on liquidation, to dispose of the properties, realise the assets and distribute the same in accordance with law.
The principles as highlighted above are precisely what
this Court intends to follow in the present case. But the facts
in that case were very different from the facts of the present
case. In that case, a private Textile Mill was purportedly
sought to be revived through sale of its land to another
Private Company in Mumbai and the Court found that the
proposed revival Scheme was a ruse to dispose of the land of
the Company, while the creditors and workers were not yet
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paid off and a vague proposal for re-employment of the
workers was given in the Scheme under Section 391 of the
Act. While in the present case, the State Government, a
majority shareholder wants to utilize the land of the Company
- NGEF Ltd., only for public purposes. The conclusions
therefore are bound to be different.
12. Taking the Court to the history of the proceedings
in the present case, after winding up order was passed, he
drew the attention of the Court, particularly, towards the
order passed by the Hon’ble Supreme Court in the Civil
Appeal Nos.6061-6063/2008 in the case of M/s.Prestige
Garden Estates Pvt. Ltd., vs. State of Karnataka & Others
and submitted that the applicant-M/s.Prestige Garden, whose
bid for purchase of part of land of this Company was not
accepted, it took the matter before the Hon’ble Supreme
Court and the Hon’ble Supreme Court in the aforesaid order
dated 25.09.2008 has clearly noted the undertaking of the
State of Karnataka that the subject land would be put to
auction and he further submitted that the scheme of revival
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placed for consideration by the Company before the Central
Government, stood rejected by the Central Government vide
its order dated 20.06.2008 and that fact was also duly noted
by the Hon’ble Supreme Court in the aforesaid order dated
25.09.2008. He, therefore, contended that being the minority
shareholder, such a shareholder has a right to ensure that
the winding up process is taken to its logical end and the
remaining assets of the Company are also put to auction to
fetch the best possible price, in the best interest of the
minority shareholder as well.
He also relied upon two more Division Bench judgments
in this regard of Calcutta High Court in the case of ARC
Holdings Ltd., vs. Rishra Steels Ltd., & Others [(2010)
157 Comp Case 364(Cal)] and another by Division Bench of
Calcutta High Court decision in the case of SST Media
Private Limited and Pradip Bandyopadhyay vs. Official
Liquidator (MANU/WB/0010/2010).
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13. On the other hand, Mr.K.G.Raghavan, learned
senior counsel appearing for the applicant-State submitted
that the contention raised on behalf of the minority
shareholder is rather misconceived, as Section 466 of the
Companies Act provides for stay of the winding up process
either temporarily or even permanently and the applicant -
State has also invoked Rules 6 and 9 of the Companies
(Court) Rules, 1959, in which this Court has inherent powers
to pass such appropriate orders as considered fit, in the facts
and circumstances of the case before the Court. He
submitted that Section 466 of the Companies Act applies only
for staying of the winding up proceedings in particular
circumstances either temporarily or permanently and there is
no specific provision in the Companies Act, 1956, empowering
this Court to recall the winding up order but Rules 6 and 9 of
the Companies (Court) Rules, 1959 can be invoked for recall
of the winding up order. He referred to several judgments,
inter alia, also the judgment of the learned Single Judge of
this Court in the case of G.T.Swamy vs. M/s.Goodluck
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Agencies reported in ILR 1988 KAR 3147, wherein this
Court referring to two previous Supreme Court decisions, in
the case of Sudarshan Chits vs. Sukumara Pillai (AIR
1984 SC 1579) and M.L.Chopra vs. Rai Bahadur (AIR
1962 SC 527) held that the power to recall the winding up
order is clearly traceable to Rules 6 and 9 of the Companies
(Court) Rules. He submitted that in the present case, the
winding up order dated 03/08/2004 either deserves to be
permanently stayed and assets of the company deserve to be
handed back to the Company or the said winding up order
deserves to be recalled and the Company be allowed to utilize
the assets of the Company for public purposes only, in either
of the case.
14. Having considered the rival submissions made at
the bar and upon perusal of the record, this Court is satisfied
that it is a fit case where the winding up order dated
03.08.2004 passed by this Court deserves to be stayed
permanently at this stage and the respondent-Company
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NGEF deserves to be allowed to revive and the assets of the
Company may be handed over back to the Management of the
Company by the Official Liquidator, at this stage, upon the
solemn Undertaking given before this Court and subject to
the directions given in this order.
15. Thanks to the large chunk of land owned and
possessed by the Company originally and still large chunk of
221 Acres, when it went into liquidation in the year 2004 and
the efficient sales of its various assets under the supervision
and the orders of this Court and the acquisition of the 50.36
acres of such land by the State for public projects like that of
BMTC, KSRTC and Metro rail projects and the compensation
amount awarded to the Company, that this Company has
been able to pay off all its secured and unsecured creditors
and the workmen by now. In this period of 13 years, the land
prices have gone up very high and the remaining land of
119.665 acres with the Company in the heart of the city is a
precious land which is free from any encumbrance now and
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which can be usefully utilized for public projects, plantation
etc. on the land which is now available with the Company.
16. The purpose of making the provisions on winding up
under the Companies Act, 1956 in Part-VII comprising from
Sections 425 to 560 of the Act is to see that all the limited
companies be it Private Ltd., or Public Ltd., which are ordered
to be wound up by the Court or go in voluntary winding up
are dissolved and finally upon an order passed under Section
481 of the Act, a Certificate to strike off the name of the
Company from the Register maintained by the Registrar of
Companies be issued under Section 560 of the Act, which
amounts to the death of the juristic person i.e. the Limited
Company. The purpose is to secure and safeguard the assets
of the Company which has defaulted in payment of its
admitted liabilities and under other contingencies as
envisaged in Section 433 of the Act, under which the winding
up order is passed by the Court, other than a case of the
voluntary winding up as provided under Chapter -III of Part-
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VII of the Act and then to ensure that the assets of the
Company are sold to realize and fetch the reasonable and
maximum net value of such assets of the Company, so that
the secured and unsecured creditors are paid off by the
Official Liquidator, attached with the Court. The assets of the
Company during the process of winding up remains in the
custodia legis of the Official Liquidator of the Company Court
and the Official Liquidator attached with the Court executes
the winding up orders passed by the Company Court. There
is no compulsion in law that the winding up order must
finally culminate into a Dissolution order in all the cases. If
during the process of winding up, the sale of some assets are
enough to pay off all the secured and unsecured liabilities of
the Company, as in the present case, and the Company is still
left with surplus assets, it can certainly apply to the Court for
staying the winding up process permanently or for recall of
the winding up order and revival of the Company.
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17. It is true that there is no specific provision for
taking a ‘U turn’ after the winding up order is passed under
the provisions of the Companies Act, 1956 and to recall the
winding up order, but at the same time, it is equally true that
there is no prohibition either for the same. It absolutely
depends upon the facts and circumstances of each case and
the revival of the Company which was ordered to be wound
up is not only not prohibited but certainly deserves to be
encouraged in appropriate cases, either by recall of the
winding up order or even by permanently staying or freezing
the same. It is only the live, operating and working
companies or business, which contribute to the economic
welfare of the country and not the process of winding up of
limited companies by sale of its assets and distribution of the
proceeds amongst the various stake holders, which achieves
this objective of larger public good.
18. The purpose of enacting Rules 6 and 9 in the
Companies (Court) Rules, 1959, giving wide and vast,
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inherent and residuary powers to the Company Court, in the
absence of any specific prohibition in the Act itself, is
purposely to leave it to the discretion of the Company Court
concerned to pass appropriate orders, to meet the situations
and facts arising before it from time to time. There are no
restrictions, inhibitions or prohibition enacted in the Act and
the Rules. Therefore, the powers of this Court are not
restricted in any manner and are plenary in nature. The
guiding factor only being that wider the powers are of the
Court, more is the circumspection, with which Courts should
exercise such powers.
19. The contention of the learned counsel for the
minority shareholder, the German Company (EHG) is that in
the absence of any scheme framed and produced before this
Court under Sections 391 to 394-A of the Act, Section 466 of
the Act cannot be invoked in the facts of the present case, is
devoid of any merit. The said provisions of Section 466 of the
Act enacts the power of the Court (now Tribunal) to stay the
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winding up proceedings either temporarily or even
permanently at any stage during the pendency thereof in
certain circumstances. The provisions are reproduced below
along with the provisions of Rules 6 and 9 for ready
reference:-
“ 466. Power of Tribunal to stay winding up
.- (1) The Tribunal may at any time after making a
winding up order, on the application either of the
Official Liquidator or of any creditor or contributory and
on proof to the satisfaction of the Tribunal that all
proceedings in relation to the winding up ought to be
stayed, make an order staying the proceedings,
either altogether or for a limited time, on such
terms and conditions as the Tribunal thinks fit.
(2) xxxxxxx
(3) xxxxxxx
Rule 6. Practice and procedure of the Court
and provisions of the Code to apply.- Save as
provided by the Act or by these Rules, the practice and
procedure of the Court and the provisions of the Code so
far as applicable, shall apply to all proceedings under
the Act and these Rules. The Registrar may decline to
accept any document which is presented otherwise than
in accordance with these Rules or the practice and
procedure of the Court.
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Rule 9. Inherent powers of Court.- Nothing in
these Rules shall be deemed to limit or otherwise
affect the inherent powers of the Court to give
such directions or pass such orders as may be
necessary for the ends of justice or to prevent abuse
of the process of the Court”.
20. Section 466 of the Act empowers the Court to stay
all proceedings in relation to the winding up altogether or for
a limited time on such terms and conditions as the Court
deems fit, if after making of a winding up order, on an
application filed by the Official Liquidator or by any Creditor
or Contributory (shareholder), the Court is satisfied that such
winding up proceedings deserve to be so stayed. This power
is obviously to enable the Court to stop the further winding
up process and not necessarily take it to the point of ‘no
return’, namely to the stage of dissolution of the Company
itself. This provision does not specifically deal with a
situation of reversal of the winding up process itself. The said
provision does not further stipulate anything about the recall
of the winding up order itself. As stated above, there is no
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specific provision for such a contingency and therefore the
Court can always resort to its plenary power under Rules 6
and 9 of the Company (Court) Rules, 1959 for the aforesaid
purpose, if it finds it appropriate to do so.
21. What the Hon’ble Supreme Court in Meghal
Homes (P) Ltd. Vs. Shree Niwas Girni K.K. Samiti and
others (supra) was dealing with was altogether a different
situation, that the Scheme of Compromise filed by a Private
Limited Company and prayer for stay of the winding up
proceedings under Section 466 of the Act was not found to be
genuine, sufficient and proper by the Hon’ble Supreme Court
as a fact and while dealing with such a situation, the
observations made in paragraphs 46 to 52 quoted above and
emphasized by the learned counsel for the German Company
here, held that unless the Company in liquidation comes up
with a proper Scheme for revival of the business of the
Company which will sub-serve the public interest and will
conform to commercial morality, the Court cannot accept
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such an improper Scheme proposed under Section 391 of the
Act. Actually the principles stated in paras 46 to 52 squarely
enable this Court to invoke its inherent powers to not only
stay the winding up proceedings but even recall such order to
meet the ends of justice. There is no fact situation in the
present cases as it obtained before the Hon’ble Supreme
Court in the facts of that case and on the other hand, the
legal position enunciated therein supports the cause of
applicant - State in the present case.
22. The Company NGEF before this Court in the
present case is a Government Company whose 90% of
shareholding is held by the State of Karnataka itself and the
objection is being raised by a minority shareholder, the
German Company, who holds only 10% of the shareholding
and none else, not any of the creditors of the Company. Even
if a detailed Scheme of revival could not be produced before
this Court along with C.A.No.184/2015, which is being
considered now, the undertaking given before this Court and
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the purpose for which a recall of winding up order is sought is,
that the huge land of 119.665 acres of land will be used exclusively
for public projects mostly infrastructural projects like those of
Metro Rail, BMTC, KSRTC, viz. Super Speciality Public
Hospitals or AIIMS Institutions, Gardens or other Educational
Institutions, etc. only. The sub-serving of the public purpose and
public interest at the hands of the State Government, the 90%
shareholder of this Government Company can be presumed
also from the averments and Undertaking of the State and there
is no contra material placed before this Court to draw any adverse
inference against the applicant State of Karnataka that it will
not abide by its aforesaid undertaking specially under the
close supervision by this Court and the cause of public will not be
served, if such revival is ordered upon the recall or stay of such
winding up order. Therefore, the judgment relied upon
by the learned counsel for the German Company is not
applicable to the facts of the present case. Moreover, a
shareholder of the Company cannot insist upon the winding up
process to be completed till the stage of Dissolution of
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Company to fetch its dividends or returns as a contributory
from the sale of all the assets of the Company. The said
German Company, which was in negotiations with the State
Government for buying back its 10% minority share holding
may still have the option to sell its shares back to the
Company in accordance with the provisions of the Companies
Act. But that is not an issue before this Court at this stage.
23. The other two judgments of Calcutta High Court
relied upon by him are also equally distinguishable on facts
and are not applicable in this case. In ARC Holdings
Limited Vs. Rishra Steels Limited & others (supra), the
Division Bench of the Calcutta High Court came to the
conclusion on facts before it that the object of the Scheme
was not to revive the activities of the wound up Company, but
it was a ruse to dispose of the assets of the Company by a
private arrangement and in such a situation, the winding up
order could not be recalled.
24. The facts of the present cases are poles apart from
the fact situation before the Calcutta High Court in that case
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and therefore the observations of the Calcutta High Court
cannot be usefully applied to the facts of the present case.
25. In another judgment relied upon by the learned
counsel for German Company, in the case of SST Media
Private Limited and Pradip Bandyopadhyay Vs. Official
Liquidator (supra), the Division Bench of the Calcutta High
Court, upholding the order passed by the learned Single
Judge in an appeal filed by two unsuccessful applicants
seeking stay of the winding up of the Company in liquidation
and dismissing that appeal, the Calcutta High Court upheld
the order passed by the learned Single Judge by which a sale
of the assets of the Company in liquidation by way of public
auction was directed and the Official Liquidator was directed
to pay the dues of the landlord towards the occupational
charges for a particular period. Nothing in this case is also
found to be enuring for the benefit of the objector - German
Company before this Court.
In the present case the State is seeking the revival of a
Government Company for larger public benefit by
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development of infrastructure projects, plantation to maintain
ecological balance. There is no chance of surreptitious
disposal of land for private gains of the Company, therefore
question of sale by public auction does not arise at all.
26. On the other hand, in paragraph 14 of the
judgment of the Hon’ble Supreme Court in the case of
Sudarshan Chits (I) Ltd. Vs. G. Sukumaran Pillai and
others (supra), the Hon’ble Apex Court held that the winding
up order once made can be revoked or recalled but till it is
revoked or recalled it continues to subsist and while it is
subsisting, the Company Court can give necessary directions
to the Provisional Liquidator to take recourse to Section
446(2) of the Act. Relying upon the decision of the Hon’ble
Supreme Court in the case of National Textile Workers
Union etc Vs. P.R. Ramakrishnan & others (AIR 1983
SC.75), the learned Single Judge of this Court in the case of
G.T. Swamy Vs. M/s. Goodluck Agencies(supra) held in
paragraph 17 of the judgment that the power of the Company
Court to recall the winding up order is recognized by the
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Supreme Court in the aforesaid judgment but the exercise of
such power is dependent on the facts and circumstances of
each case. Para.17 of the judgment is quoted below:
“17. I have no doubt in my mind that regard
being had to the provisions of Rules 6 and 9 of the
Rules framed by the Supreme Court in exercise of the powers under Section 643 of the Act, the power of Company Court to recall the winding up order is recognized by the Supreme Court in the aforesaid two decisions. But the exertion of that power is dependent on the facts and circumstances of each
case. Perhaps, consideration which are relevant in regard to an order of winding up under Section 433(e) may not be relevant for an order of winding up under the ‘just and equitable’ clause…”
27. The provisions of the 1913 Companies Act, which
corresponds to Section 466 of the Companies Act, 1956, is
Section 173 and the decision of the Calcutta High Court of
S.R. Das, J, as he then was, in East India Cotton Mills
Limited AIR 1949 Cal.69 has been summarized in
paragraph 50 at page 84 quoting from the passage of
Halsbury’s Laws of England, 5th volume Article 1209 at 724
and also referring to the well known decisions in Re:
Telescripter Syndicate Limited 1903 (2) Ch.174 at pages
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180, 181 where the trenchant observation of Fry.LJ, in the
earlier case of Re: Hester 1889 (22) Q.B.D.632 at 641 has
also been referred. The corresponding provisions of the
English Companies Act is Section 256 which is in pari materia
with the Indian Companies Act, Section 466. In Re: Calqany
Edmonton Land Co. Limited 1975 (1) A.E.R. 1047,
Megarry, J., enumerated the factors to be considered which is
neatly put in the Head Note of the said report which is as
follows:-
“ The Court would in normal circumstances
generally exercise its discretion to grant stay only where the applicant showed (a) that each creditor had either been paid in full or that satisfactory provisions for him to be paid in full was to be made or that he consented to the stay or was otherwise bound not to object to it; (b) that the Liquidator’s
position was fully safeguarded either by paying him proper amount of his expenses or sufficiently securing payment; and (c) that each member either consented to the stay or otherwise was bound not to object to it, or there was secured to him the right to receive all he would have received if the winding up has proceeded to its conclusion.”
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28. In Palmers’ Company Law, Volume 1, 22nd Edition
in Article 81-98 at page.938 the principle is summarized as
follows:-
“The Court has a discretion, on the application of the liquidator or official receiver, or any creditor or contributory, to stay the proceedings under a winding up order (S.256). In exercising this discretion the Court will be guided by the analogy of bankruptcy in rescinding a receiving order – that is to say, it will consider the interests of commercial morality and not merely the wishes of creditors and will refuse a stay if there is evidence of misfeasance or of irregularities demanding investigation.”
And also in Article 83-60 at Page 1001 which is as
follows:
“ The Court has discretion, on the application of the liquidator or any creditor or contributory, to stay winding up proceedings at any time (S.256(1). A copy of any such order must be sent by the
Company, or otherwise as the Court may prescribe, to the Registrar of Companies (S.256(3). In exercising its discretion under this Section the Court will consider the interests of commercial morality and not merely the wishes of creditors, eg., if there appear to be irregularities requiring investigation to
continue.”
29. William on Bankruptcy says as follows:-
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The mere fact that all the creditors consent will no longer entitle the debtor to have the bankruptcy annulled; and where the debts are not paid in full and the adjudication was properly
made in the first instance, the Court cannot annul except under a scheme under Section 21 (vide supra), or an arrangement is proposed which amounts in substance to such a Scheme, even though not complying with the formalities of that Section. Even where the debts have been paid in
full, the Court has a discretion to refuse to annul, and may refuse an annulment on the ground of the bankrupt’s misconduct, e.g., concealment of assets; a second application to annul may, however, be made when a reasonable time has elapsed after the refusal of the first. In Re: McHenry Lavita’s
Claim (under the 1869 Act, where the consent of creditors was relevant), the bankrupt had procured some of his creditors to sell their debts to trustees, who might consent to the annulment of the bankruptcy, which they did. With one assigning creditor the bankrupt had agreed to pay him a
further sum at a future time; it was held that there was no duty to disclose the agreement to the Court on the application to annul, nor to the other creditors, there being no common basis of consent. But since, under the present Act, the Court has considered all the circumstances of the case, and
will not annul merely because the creditors consent, such an arrangement would presumably have to be disclosed to the Court on an application to annul.
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30. Lord Scarman in a case , as quoted in Aziz Vs.
Managing Director, KSRTC (ILR 1986 Kar.2007) observed
about inherent powers of the Court as under:
“In our society the Judges have in some aspects of their work a discretionary power to do justice so wide that they may be regarded as law makers. The common law and equity, both of them in
essence systems of private law, are fields where, subject to the increasing intrusion of statute law, society has been content to allow the Judges to formulate and develop the law. The Judges, even in this, their very own field of creative iendeavour, have accepted, in the interests of certainty, the self-denying ordinance of ‘safe decisions’ the doctrine of binding precedent; and no doubt this judicially imposed limitation on the judicial law making has helped to maintain confidence in the certainty and evenhandedness of the law. But in the field of statute law the Judge must be obedient to the will of Parliament as expressed in its enactments. In this field Parliament makes, and unmakes, the law; the Judge's duty is to interpret
and to apply the law, not to change it to meet the Judge's idea of what justice requires. Interpretation does, of course, imply in the interpreter a power of choice where differing constructions are possible. But our law requires the Judges to choose the construction which in his Judgment best meets the
legislative purpose of the enactment. If the result be unjust but inevitable, the Judge may say so and invite Parliament to reconsider its provision. But he must not deny the statute.
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Unpalatable statute law may not be disregarded or rejected, merely because it is unpalatable. Only if a just result can be achieved without violating the legislative purpose of the statute may the Judge select the construction which best suits his idea of what justice requires. Further in our system the rule “stare decisis” applies as firmly to statute law as it does to the formulation of common law and equitable principles. And the keystone of “stare decisis” is loyalty throughout the system to the decision of the Court of Appeal and this House. The Court of Appeal may not overrule a House of Lords decision; and only in the
exceptional circumstances set out in the practice statement of July 1, 1966 (Practice Statement (Judicial Precedent) 1 W.L.R. 1234), will this House refuse to follow its own previous decisions.”
31. In the case of Dilip B. Sheth Vs. Official Liquidator
of Alang Industrial Gases Ltd. And another [2011 SCC.Online
Guj.7615: (2012)171 Comp. Case 231], the Gujarat High Court
has held as under:
“33. In view of the provision under the said rule 6
of the Rules, the power available under section 151 of the Code would be available to the court. A conjoint reading of the provisions under rules 6 and 9 of the Rules bring out the position that the court has the power and, will have the freedom and authority to call in aid the provisions under section
151 of the “Code” and the combined strength, i.e., the power under rule 9, rule 6 and section 151
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of the Civil Procedure Code, 1908 will empower the court, to pass appropriate order including an order recalling the court's own (earlier) order, as equity may demand and as
may be necessary for the ends of justice. 34. As such the scheme of the Act does not contain any specific and direct provision expressly
conferring power on the court to recall simplicitor (i.e. without requiring the applicant to observe and comply with any procedure or condition) the order of winding up, so as to illustrate this aspect, reference can be made to sections 391 to 394 of the Act. The said provisions do empower the court to
pass an order of such nature and effect but they also lay down, in detail, the procedure which an applicant would be obliged to follow. Therefore, the question, which arises is that in exercise of inherent and special power, whether the court can pass an order in the nature of and having effect of recalling
the order of winding up.
35. In this context it is appropriate to take note of the
observations made by the apex court in the decision in the
case between Sudarsan Chits (I.) Ltd. v. Sukumaran Pillai, (1984) 4 SCC 657 : AIR 1984 SC 1579; [1985] 58 Comp Cas 633 wherein the apex court, while dealing with
the issue raised with reference to the provision under section
446 of the Act observed in paragraphs 13 and 14 that (page
641):
“However, the narrow question which is required
to be considered in this appeal is: whether the
winding up proceedings were pending or had
come to an end when the Appellate Bench froze
the winding up order by keeping it in abeyance?
Let it be made at, once clear that the winding up
order made by the learned company judges in
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respect of the appellant-company, has neither
been quashed, set aside, cancelled, revoked nor
recalled. On the contrary after directing that the
winding up order shall be held in abeyance, the
Appellate Bench directed that the official
liquidator shall continue to act as provisional
liquidator as provided by section 450 and that
itself is a stage in the winding up proceedings.
When the winding up order is kept in abeyance it
is in a state of suspended animation. The fact
that the Appellate Bench directed that pending
implementation of the scheme as sanctioned by
the High Court, the winding up order will be kept
in abeyance itself without anything more shows
that the order was neither cancelled nor recalled
nor revoked or set aside. It continued to exist but
was inoperative. Any default on the part of the
company in carrying out its obligation under the scheme by itself without anything more would revive the winding up order. Therefore,
the winding up order was effectively subsisting
but inoperative for the time being, having all the
potentiality of being rejuvenated or being brought
back to life.
Now, if the winding up order was merely held in abeyance, i.e., if it was not operative for the time
being, but had not ceased to exist, the winding
up proceedings are in fact pending and the court
which made the winding up order would be the
court which is winding up the company. It is now
well-settled that a winding up order once made
can be revoked or recalled but till it is revoked or
recalled, it continues to subsist. That is the
situation in this case. If the winding up order is
subsisting, the court which made that order or
the court which kept it in abeyance will have
jurisdiction to give necessary directions to the
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provisional liquidator to take recourse to section
446(2).”
32. In Omprakash J. Mehra Vs. Surlex Diagnostic Ltd.
(2012 SCC Online Bom. 1497), the Mumbai High Court has held at
para.16 as under:
“16. Now the next question is to dispose off the Company Petition which is revived and as observed above. In the commercial matters monetary claims can be settled at any stage. The dues of the Creditors and/or Workers of the Respondent if paid and settled, there is no question to continue with the order of winding up. The Court, in such a situation,
can dispose off the Petition as it is settled out of the Court. There is no bar that Court cannot permit the parties to settle the matter at any point of time. Therefore, in the presence case, as no claims survive and/or there are no dues payable to any one, including Creditor and/or Workers of the Respondent Company and as there is no claim and/or objection received in spite of advertisement published by the Official Liquidator on 26th July, 2012, I am inclined to observe that there is no point in keeping Company Petition No. 275 of 1995 pending. I am inclined to observe that in view of Section 446 of the Companies Act also, the present Petition can be disposed off as settled out of the Court, with liberty.”
33. The legal position therefore which emerges is, that there
is no prohibition or restraint on the Company Court to recall the
winding up order if the facts and circumstances requiring such a
recall are established by any of the applicants, be it Official
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Liquidator or a Creditor or a contributory or a share holder. Here,
the applicant is the majority share holder, viz. the State of
Karnataka itself and this Court is not only satisfied but records its
happiness for a Government Company seeking to come out of the
process of winding up by this Court and for removing the
impediment on the user of the assets of the Company, the big
chunk of land for public purposes and for that purpose seeking its
revival. The revival of Company does not necessarily mean revival
and restoring of the usual manufacturing or the business activity.
It is a broader term including therein, the best utilization of its
assets including the vacant land.
34. In other words, even by a permanent stay of winding up
process under Section 466 of the Act at this stage, Section 466 of
the Act provides for a platform to the Company Court to not only
permanently or temporarily suspend the winding up process but to
permit the Company to revive either its running business to utilize
its assets which are free from the charge of the creditors and
workers’ liability or are likely to be free from it charge soon, if the
Company has made adequate arrangements for the same.
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35. This Court is conscious of the fact that a big chunk of
Government land which is presently in the custodia legis of the
Official Liquidator if not properly safeguarded and utilized for the
pressing public needs on the other hand may lead to even
encroachments by unauthorized people on such public land,
further engulfing the Government and the public authorities in a
chain of litigations. Therefore, it is always appropriate and
suitable if the idle immovable property of the Government
Company like big chunk of land, as is available in the present
case, is best utilized for the larger public interest and therefore this
Court does not see any impediment or valid objection against such
revival of the Company and restoring the assets of the Company to
its Management under the provisions of the Companies Act, while
staying the winding up process permanently at this stage subject
to the compliance of the solemn Undertaking given by the State
before this Court. It has already been noted above that none of
the creditors, secured or unsecured or Official Liquidator have put forth
any objection before this Court, except a minuscule number of workmen
and the minority share holder, the German Company. As discussed
above, the objection of the German Company has no merit.
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36. As far as a few of the workmen are concerned, the
learned counsel for the workmen also fairly submitted that such
workmen whose dues have so far not been settled because of
litigation by them or otherwise, they should be given an
opportunity to place their claim before the concerned Nodal Agency
viz. KSIIDC or the Management of the Company itself when a
proper Board of Directors is reconstituted by this Company or the
State of Karnataka.
37. The learned senior counsel appearing for the Applicant
State of Karnataka has fairly agreed to this submission and
accordingly the remaining workmen whose claims are still pending,
along with their relevant evidence, can approach either the said
Nodal Agency, KSIIDC or upon transfer of assets to the
Management of the Company by the Official Liquidator to the duly
constituted Board of Directors, whenever such assets and
Management are handed over back to the Board of Directors of the
Company.
38. The aforesaid undertaking of the learned Senior counsel
for the Applicant - State of Karnataka to utilize the land of 119.665
acres only for public purposes in the form of infrastructure
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development etc. only would include the following and therefore
this Court also directs and enjoins upon the State to undertake
thick afforestation and Tree Plantation work on the said land
which will maintain the ecological balance and provide additional
lung capacity and fresh air to the otherwise dying Garden City of
Bengaluru.
With its first quarterly report, State shall submit the details
of the total number of existing trees on the said land of 119.665
Acres of land, with types of the trees and the site photographs of
the entire area covered in different photographs taken zone-wise
and its plan to undertake the plantation work in phased manner in
future as well.
39. In view of the aforesaid, Company Application
No.184/2015 is allowed and the winding up order dated
03/08/2004 passed by a co-ordinate bench of this Court is stayed
or sisted and kept in suspension sine-die and the recommendation
of the BIFR dated 02/08/2002 forwarded to this Court for winding
up of the Company is also stayed permanently subject to the
further orders of this Court.
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40. The Official Liquidator may now take steps to handover
the assets and records of the Company with the Status Report as
soon as he is informed about the constitution of the Board of
Directors by the Applicant - State of Karnataka, with the approval
of this Court.
41. This Court would remain in de jure seisin of the assets
of the Company and monitor the implementation of aforesaid
Undertaking of the applicant - State, which forms the basis of this
order of stay of the winding up of NGEF Limited and as undertaken
by the learned Senior Counsel for the Applicant - State of
Karnataka also, and fairly so, the Applicant - State of Karnataka
will submit the Quarterly Reports of the implementation and
progress of the utilization of the land and other assets of the
Company for the public purpose as undertaken before this Court
and as indicated in the aforementioned paragraph No.38.
42. It is needless to say, that if the State goes back on its
aforesaid Undertaking and assurance to utilize the said land for
the public purposes with due approval of this Court only in the
aforesaid manner, this Court may even recall or modify this order
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either suo motu or on appropriate application with the relevant
evidence.
43. It is also made clear that once the aforesaid process of
revival of the Company in the form of utilization of the assets of the
Company in the public interest is completed under the supervision
of this Court as indicated above, the winding up order itself may be
recalled by the Court lateron.
44. The said Quarterly Reports may be placed before the
Company Judge along with the main Company Petition
No.154/2002 and the record of the present Company Application
No.184/2015, for perusal and needful approvals by this Court
from time to time, after the end of every quarter, the first Report to
be placed in the month of September 2017.
45. The State Government shall appoint a Nodal Officer
immediately of the level of a Principal Secretary to the Government
to submit the aforesaid Quarterly Reports through him and who
will assist the Court in monitoring the approvals and the
implementation of the aforesaid Undertaking of the State to utilize
the said land of 119.665 acres only for public projects and
plantation work. Each of the project proposed by State
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Government for development of infrastructure or other public
projects in larger public interest will be separately placed before
the Court and without the specific approval of this Court, the said
utilization of land and other assets for such public purposes shall
not be undertaken by the applicant – State Government.
46. The applicant – State Government shall publish the
substance of the said Undertaking of State and directions given in
this order in the leading Daily Newspapers in English, Kannada
and Hindi languages published in the State of Karnataka within a
period of one month from today, for the information of the public at
large for whose benefit the aforesaid order and directions have
been passed by this Court.
Sd/- JUDGE
Srl/BMV*