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PETITIONER: MAHARASHTRA STATE TEXTILE CORPORATION LTD.

       Vs.

RESPONDENT: THE OFFICIAL LIQUIDATOR AND ORS.

DATE OF JUDGMENT04/01/1978

BENCH: FAZALALI, SYED MURTAZA BENCH: FAZALALI, SYED MURTAZA SINGH, JASWANT

CITATION:  1978 AIR  476            1978 SCR  (2) 499  1978 SCC  (1) 490

ACT: Sick  Textile Undertakings (Taking over of Management)  Act, 1972--S. 8, Scope of-Construction of the words "winding  up" occurring    in    Sec.   8--Sick    Textile    Undertakings (Nationalisation) Act, 1974 S. 35, r/w S. 2(1)(a), Scope of- Effect  of  the interim order‘ of this Court  dt.  28-9-1973 explained.

HEADNOTE: The  appellant  M.S.T.C. had taken a lease of  the  original company  known  as R. B. Bansilal Abhir Chand  Spinning  and Weaving Mills (P) Ltd., Hinganghat (Maharashtra).  The  said company  was ordered to be wound up by an order dated  1-10- 1965 and an official Liquidator was appointed.  On 3-2-1967, a  lease  for  the  running of the mill  was  taken  by  the government  of  Maharashtra  which was handed  over  to  the appellant  for running the mill on behalf of the state.   At the  time  of  taking  over,  the  appellant  did  not  take possession of all materials which it considered  unnecessary as it did not want to pay higher compensation.  Consequently several  items  were  segregated  and  handed  over  to  the official   Liquidator.   On  31-12-1972  the  Sick   Textile Undertakings  (Taking  over  of Management)  Act,  1972  was passed  and was given retrospective operation w.e.f.  31-10- 1972 the date of its earlier ordinance.  In January 1973,  a Writ Petition was filed in this Court challenging the  cons- titutional validity of the Management Act of 1972 and  while the  Writ Petition was pending an interim order dated  28-9- 1973  was  passed  viz.; "Upon hearing  Counsel,  the  Court directed  that the maintenance of status quo shall  continue pending  disposal  of  the Writ  Petition  except  that  the liquidation  proceedings  will go on, but there will  be  no distribution  of  money amongst  creditors  or  contributors until further orders." On 16-11-73 meetings were held before the  official  liquidator  to consider  the  effect  of  the interim  order and ultimately the official liquidator,  with the  concurrence of the representatives of  the  erstwhile directors  of  the Company, decided that the assets  of  the company  may  be realised by the  official  liquidator.   On 19-4-74  the official Liquidator reported to the  court  for granting  permission  for sale of certain moveable  such  as furniture  duplicating machines and machinery scrap etc.  on

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which  the company ’court directed notice to the  Additional Government  Pleader.  On 30-4-1974, the  appellant  appeared and wanted time for filing objections but no objections were filed  and  the company judge by its order  dated  25-6-1974 directed the official liquidator to sell the said assets and realise the price thereon.  On 28-6-1974, certain  directors were  sought  by the official liquidator for  approving  the proposed  purchasers  which was granted and the  items  were sold  for Rs. 72,501/-.  On 3-7-1974 the court accepted  the offer of respondents 2 and 3 and nine days later, the  court granted  permission  for  removal of the  materials  by  the purchasers,  but  because  of  some  labour  troubles,   the materials  could not be taken physical possession of by  the purchasers.   The  Division Bench of the Bombay  High  Court dismissed  the  appeal filed by the  appellant  against  the order of the court directing the sale of the articles on the ground  that as this court by virtue of its  interim  order dt.  28-9-1973 had authorised the sale of the articles,  the court  was  fully justified in ordering the  sale  of  these articles. Allowing the appeal by special leave, the Court, HELD  :  1. The High Court has not  properly  construed  the interim  order  ,of this Court and was  under  an  erroneous impression of law that this Court by itsinterim  order  had in fact  authorised  the  sale which in law is invalid. [503-B] 2.The  interpretation put upon the interim order  by  the High  Court  is  not  ,correct.  The  order  of  this  Court directing the, maintenance of status quo did clot  impliedly amount  to  suspension of the provisions of  the  Management Act. [503-D] 500 3.Though S. 8(1) of the Management Act does not place  an absolute  embargo on the continuance of the proceedings  for the winding up of a textile company, it imposes an important condition  for the continuance of the  proceedings,  namely, that  the  consent  of  the  Central  Government  should  be obtained. [503F] 4.When this Court passed the interim order dt.  28-9-1973 and ’allowed the liquidation proceedings to continue it,  it only   meant  that  the  proceedings  should   continue   in accordance  with law and if the law enjoined  any  condition the same must be complied with. in view of the provisions of S.  8  of  the Management Act, the consent  of  the  Central Government  was necessary, so the order of this Court  would be  interpreted  as  meaning  that  the  proceedings.  could continue after the official liquidator obtained the  consent of  the  Central  Government u/s 8 of  the  Management  Act. [503F-G] 5.The  order passed by this Court did not given any  free licence  to  the  parties  to act  in  disobedience  of  the mandatory provisions of the Act and continue the proceedings without  complying with the conditions enjoined by S.  8  of the  Management  Act.  Without the consent  of  the  Central Government  the liquidation proceedings could  not  continue and the Company Judge was not legal,, justified in  ordering the sale of the moveables without obtaining the sanction  of the Central Government. [503G-H, 504A] 6.The  words " winding up" in S. 8 of the Management  Act must  be  given the widest possible amplitude  in  order  to serve  the  purpose  of  the Act,  namely,  to  control  the proceedings of a textile company which is in liquidation, by the Central Government.  Whether the company had been  wound up  or  whether the proceedings for the ’winding up  of  the

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company had been continuing would make no difference so  far as  the  application of Section 8 of the Management  Act  is concerned.   It is not possible, therefore to  construe  the words  "winding  up" in such a narrow sense,  viz.  that  it applies  merely  to  proceedings for the  winding  up  of  a textile  company,  so as to defeat the very  object  of  the Management Act. [504B-D] 7.On   a   proper   construction  of   S.   35   of   the Nationalisation Act, which reproduced the provisions of S. 8 of the Management Act in a different form the permission  of the  company judge given to official liquidator to sell  the moveables  would  fall within the mischief of S. 35  of  the Act. [504-G] 8.In  view of the definition of the word "Appointed  day" in Sections 2(1)(a) of the Nationalisation Act, it is  clear that  the  Act, after being passed’ would by virtue  of  its statutory  fiction, take effect from the 1st day  of  April’ 1974  and all proceedings taken after this day  without  the permission  of the Central Government would become  void  ab initio.  The High Court was in error in not giving effect to the  statutory  fiction  contained  in  S.  2(1)(a)  of  the Nationalisation   Act,  by  explaining  away  that  as   the Nationalisation  Act was in fact passed after the court  had granted permission to sell, it could not affect the sale  at all.   Even though the Nationalisation Act may have come  in force  on a later date, the statutory fiction  contained  in the Act must be fully given   effect to by the court even if the effect of the same is to nullify anorder     passed prior to the passing of the Act. [504G-14, 505A-B, F] East End Dwellings Co. Ltd. v. Finsbury Borough Council 1952 A.C.109’ quoted with approval; Mr. Boucher Pierre Audre  v. Superintendent, Centralfail’     Tihar,  New Delhi  A.I.R. 1975 S.C. 164 applied; 9.The  express provision of S. 35 of the  Nationalisation Act  clearly  voided  the sale which took  place  under  the orders of the company judge after the Act would be deemed to have come into force.  The order by which the articles  were sold  was void in law and completely destitute of any  legal effect.  The Interim order passed by this Court on 28-9-1973 could not have had the, effect of authorising the sale which was void under the statute. [505 F-G] 501

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 777 of 1975. Appeal  by Special Leave from the Judgment and  Order  dated the 27th Feb., 1975 of the Bombay High Court (Nagpur  Bench) in  Company Appeal No. 4 of 1974 in Company Petition No.  12 of 1965. S.N.  Kacker, Sol.  General of India, T. V. S.  N.  Chari for the Appellant. M.K. D. Nambodooiry, S. V. Deshpande, S. Balakrishnan for Respondent No. 1 P. R. Mridul, Shiv Pujan Singh for Respondents 2 and 3 The Judgment of the.  Court was delivered by FAZIL  ALI, J : This appeal by special leave turns upon  the interpretation  of an interim order passed by this Court  on 28th  September,  1973 in a writ  petition  challenging  the validity  of the Sick Textile undertakings (Taking  over  of Management) Act, 1972 as also the impact of the Sick Textile Undertakings (Nationalisation) Act, 1974 on the  proceedings taken in this case both before and after, the passing of the interim order by this Court.

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For short we shall refer to the appellant Maharashtra  State Textile, Corporation as M.S.T.C., the Official Liquidator as O.L.,   the  Sick  Textile  Undertakings  (Taking  Over   of Management) Act of 1972 as the Munagement Act and in case of the  Ordinance which ha preceded that Act as the  Management Ordinance.  The Sick Textile Undertakings  (Nationalisation) Act 1974 will be referred to as the Nationalisation Act. The  point involved lies within a very narrow  compass  and the High Court appears to have travelled unnecessarily  into the   wealth  of  details  regarding  the  history  of   the proceedings   and  has  entered  into   meticulous   detail$ regarding the provisions of the Acts concerned although  for the purposes of this case it was necessary to refer only  to a   few   provisions   of  the  Management   Act   and   the Nationalisation Act. In  order  to  appreciate the point in  controversy  in  the instant case it may be’necessary to, give a brief survey of, the  facts leading up to the impugned order.  The  appellant M.S.T.C.  had taken a lease of the original  company  known" as.   R.B.. Bansilal Abhir Chund Spinning and Weaving  Mills (P)  Ltd.  Hingangbat (Maharashtra).  By an order  dated  1. 10. 1965 the said company was ordered to be wound up and  an Official  Liquidator of the company was appointed.   On  3rd February, 1967 a lease for the running of the mill was taken by  the Government of Maharashtra which was handed  over  to M.S.T.C.  for running the mill on behalf of the  State.   At the time of taking over the appellant M.S.T.C. did not  take possession   of  all  the  materials  which  it   considered unnecessary  as it did not want to pay higher  compensation. Consequently  several items were segregated and handed  over to  the O.L. but the rest of the assets were taken  over  by the  appellant  M.S.T.C.  Some times in  1971  the  Official Liquidator sold 16 lots of store items, 502 out  of which three lots were not taken. delivery of by  the purchasers  M/s Akash Traders who had to pay  Rs.  67,000/-. We would like to mention here that we are not concerned with this item of three lots in the instant case and the equities of  the  same  will  have  to  be  worked  out  between  the purchasers and the Official Liquidator. On  31.10.1972 the Management Ordinance was  promulgated  by the President of India which was followed by the  Management Act   which   was  passed  on  31.12.1972  and   was   given retrospective  operation  with effect  from  31.10.1972.  In January,  1973  a  writ petition wag  filed  in  this  Court challenging the constitutionality of the Management Act  and while, the writ petition was pending, an interim order dated 28.9.1973 was passed in the following terms               "Upon hearing counsel, the Court directed that               maintenance  of  status  quo  shall   continue               pending  disposal of the Writ Petition  except               that  the liquidation proceedings will go  on,               but  there  will be no distribution  of  money               amongst  the creditors or  contributors  until               further orders". On  16.11.1973  meetings  were  held  before  the   Official Liquidator ’to consider the effect of the interim order  and ultimately  the Official Liquidator with the concurrence  of the  representatives  of-  the erstwhile  directors  of  the company  decided  that  the assets of  the  company  may  be realised by the Official Liquidator.  It was further decided that  the three lots of which delivery was not taken by  M/s Akash Traders should be sold.  In pursuance of this decision the Official Liquidator reported to the court for permission to  sell  the  three lots and the  court  granted  the  said

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permission  as a result of which the said three  lots  we’re sold on 14-2-1974, and were purchased by Raj Trading Company the  second  respondent.  An appeal was  filed  against  the order of the court dated 12.2.1974 to the Division Bench but the same was dismissed. On  19-4-1974  another  report  was  made  by  the  Official Liquidator for sale of certain moveables such as  furniture, duplicating  machine  and machinery scrap  etc.   The  Court directed notice to the Additional Government Pleader on  the aforesaid report of the Official Liquidator. On  30th  April, 1974 the appellant  M.S.T.C.  appeared  and wanted  time  for filing objections but no  objections  were filed  and the Company Judge by its order dated  25th  June, 1974   directed   the  Official  Liquidator  to   sell   the aforementioned  assets  and realise the price  thereon.   No appeal  against  this  order  was  filed  by  the  appellant M.S.T.C.  On  the 28th June, 1974  certain  directions  were sought by the Official Liquidator for approving the proposed purchasers  which  was granted.  The items  mentioned  above were  sold for Rs. 72,501/-.  On 3-7-74 the  Court  accepted the  offer of respondents 2 and 3 and 9 days later on  12-7- 1974  the  Court  granted  permission  for  removal  of  the materials  by the purchasers, but unfortunately  because  of some  labour  trouble  the  materials  could  not  be  taken physical  possession  of by the purchasers.   The  appellant M.S.T.C.  filed an appeal before the Division Bench  against the  order of the Court directing the sale, of the  articles which 503 was  however dismissed by the Division Bench of  the  Bombay High Court mainly on the ground that as this Court by virtue of its interim order dated 28-9-1973 had authorised the sale of  the articles the Court was fully justified  in  ordering the sale of those articles.  It is against this order of the High  Court  that  the appellant has come up  in  appeal  by special leave. This  is  therefore  in a nutshell the  sequence  of  events leading  to the passing of the impugned order passed by  the High  Court dated 27-2-1975.  We have heard counsel for  the parties and have also perused the judgment of the High Court and  we feel that the High Court has not properly  construed the interim order of this Court and was tinder an  erroneous impression of law ’that this Court by its interim order  had in fact authorised the sale which in law was invalid.  It is common  ground that at the time when this Court  passed  the interim  order dated 28-9-1973 the Management Act  1972  had already come into force.  In the writ petition in which  the interim  order  of this Court was passed the  vires  of  The Management  Act was challenged and it would appear from  the reliefs  sought ill the petition that there was  an  express prayer  for suspending the provisions of the  Act.   Despite this  fact  this  Court did not at all suspend  any  of  the provisions  of the Act, but merely allowed  the  liquidation proceedings to go on and the only condition imposed was that there  would  be  no,  distribution  of  money  amongst  the creditors  or contributors until further orders.   The  High Court was of the view that the order of this Court directing the   maintenance  of  status  quo  impliedly  amounted   to suspension of the provisions of the Management Act.  We  are however unable to agree with the interpretation put upon the interim order by the High Court. Section 8(1) of the Management Act runs thus               "No  proceeding   for  the  winding  up  of  a               textile  company, within the meaning  of  this               Act,  shall lie in any Court or  be  continued

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             whether  by  or under the supervision  of  any               Court or voluntarily, except with the  consent               of the Central Government". Analysing  this  provision it is manifest  that  though  the section  does  not  contain  an  absolute  embargo  on   the continuance  of  the  proceedings it  imposes  an  important condition  for the continuance of the  proceedings;  namely, that  the  consent  of  the  Central  Government  should  be obtained.   When this Court passed the interim  order  dated 28-9-1973   and  allowed  the  liquidation  proceeding    to continue it only meant that the proceedings should  continue in accordance with law and if the law enjoined any condition the  same must be complied with.  In view of the  provisions of  section  8  of the Management Act  the  consent  of  the Central Government was necessary, so the order of this Court would  be interpreted as meaning that the proceedings  could continue after the Official Liquidator obtained the  consent of the Central Government under section 8 of the  Management Act.   The order passed by this Court did not give any  free licence  to  the  parties  to act  in  disobedience  of  the mandatory provisions of the Act and continue the proceedings without complying with the conditions enjoined by section  8 of the Management Act.  In 504 these    circumstances,   therefore,   the   inference    is irresistible  that  without  the  consent  of  the   Central Government  the liquidation proceedings could  not  continue and the company Judge was not legally justified in  ordering the sale of the moveables without obtaining the sanction  of the Central at Government. It  was however suggested on behalf of the respondents  that section  8  would have no application to the  facts  of  the present  case  inasmuch as that section  applied  merely  to proceedings for the winding up of a textile company.  In the instant case, the company had already been wound up and  the proceedings had however passed beyond the scope contemplated by  section  8  of  the  Management  Act.   A  delicate  and ingenious distinction was sought to be drawn by counsel  for the respondents between "the winding up" proceedings and the proceedings which started after a company had been wound up. In  our opinion. it is not possible to construe,  the  words "winding  up" in such a narrow sense as to defeat  the  very object  of  the Management Act.  In our opinion,  the  words "winding up" must be given the widest possible amplitude  in order to serve the purpose of the Act namely, to control the proceedings of a textile company which is in liquidation, by the Central Government.  Whether the company bad been  wound tip  or whether the proceedings for the winding up  of  the, company lad been continuing would make no difference so  far as  the, application of section 8 of the Management  Act  is concerned.  In these circunstances, we are unable to  accede to  the  argument  put  forward  by  the  counsel  for   the respondents. It  was rightly submitted by counsel for the appellant  that the High Court appears to have completely lost sight of  the effect  of  the  Nationalisation Act which  bad  been  given retrospective effect. in this connection, our attention  was drawn  to section 35 of the Nationalisation Act  which  runs thus :-               "No  proceeding  for  the,  winding  up  of  a               textile  the  right, title.  and  interest  in               relation to the sick textile undertaking owned               by  which have vested in the National  Textile               Corporation under  this,  Act  or  for   the               appointment  of a receiver in respect  of  the

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             business of the sick textile undertaking shall               lie  or be proceeded with in any court  except               with the consent of the Central Government". This  section reproduced the provisions of section 8 of  the Management  Act in a different form.   The,  Nationalisation Act  was passed oil 21-12-1974 and was, given  retrospective effect  from 1-4-1974.  Thus, if the Act was to be  properly construed  the permission of the Company Judge given to  the Official Liquidator to sell the moveables would fall  within the mischief of section 35 of the Act. Section 2 (1) (a) of the Nationalisation Act runs thus " "Appointed day" means the 1st day of April, 1974".  It is, therefore,  clear that the Art after being passed would,  by virtue,  of its statutory fiction, take effect from the  1st day of April, 1974 and all 505 proceedings  taken after this day without the permission  of the  Central ,Government would become void  ab-initio.   The High  Court seems to have explained away this aspect of  the matter on the ground that as the Nationalisation Act was  in fact passed after the Court had (ranted permission to  sell, it could not affect the sale at all.  We are of the  opinion that the High Court was in error in not giving effect to the statutory  fiction  contained  in section 2(1)  (a)  of  the Nationalisation Act. In  the  case  of East End Dwellings Co.  Ltd.  v.  Finsbury Borough ,Council(1) Lord Asquith observed as follows :-               "If you are bidden to treat an imaginary state               of  affairs as real, you must  surely,  unless               prohibited from doing so, also imagine as real               the  consequences and incidents which, if  the               putative state of affairs had in fact existed,               must   inevitably   have   flowed   from    or               accompanied it......... Tile Statute says that               you  must imagine a; certain state of  affairs               it does not say that having done so, you  must               cause  or  permit your imagination  to  boggle               when it comes to the inevitable corollaries of               that state of affairs". These  observations were quoted with approval by this  Court in the case ,of Mr. Boucher Pierre Audre v. Superintendent,- Central  Jail,  Tihar,  New  Delhi(2)  where  Bhagwati,   J. speaking for the Court observed as               "It is now well settled law that where a legal               fiction is created, full effect must be  given               to it and it should be carried to its  logical               conclusion". In  view of the decision of this Court it is  manifest  that even  though  the Nationalisation Act may  have  come,  into force  oil a later date the statutory fiction  contained  in the  Act must be fully given effect to by the Court even  if the  effect of the same is to nullify an order passed  prior to:  the passing of the Act.  For these reasons,  therefore, we are clearly of the opinion that the express provisions of section  35 clearly voided the sale which took  place  under orders  of the Company Judge after the Act would be  deemed to, have, come into force. Thus  whichever  way we look at this case; the  position  is clear  that the, order by which the articles were  sold  was void  in law and completely ,destitute of any legal  effect. The  interim order passed by this Court on  28-9-1973  could not  have had the effect of authorising the sale  which  was void under the statute,.  For these reasons, therefore,  the observations  of  the  High  Court  while  interpreting  the interim order of this Court which may be extracted thus

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             "In  other  words, the Supreme  Court  by  its               interim  order has suspended the operation  of               section 8 of the Management               (1)   [1952] A.C. 109.               (2)   A..’.R. 1975 S.C. 164.               506               Act,  but subject to the provisions  that  the               vesting  in management and the  possession  of               the  respective  parties  will  be   preserved               undisturbed". are uncalled for as they are, based on a misconstruction  of the interim order passed by this Court. For the reasons given above the appeal is allowed, the order of  the,  High Court is set aside and the sale held  by  the Official Liquidator in pursuance of the order of the Company Judge is annulled.  In case, the concerned respondents  have deposited the purchase money in Court they would be entitled to  refund  of the same according to law as  the  sale  made under the orders of the Company Judge has been held by us to be invalid and void.  The decision of this appeal would  not govern the order of three lots of items of movable  property which  had  been  sold earlier and which  do  not  form  the subject  matter  of the, present appeal.   In  the  peculiar facts and circumstances of the case there will be no order as to costs, S. R. Appeal allowed.. 507