Multi-State Co-operative Societies Act, 2002:
ss. 89 and 90 – Winding up of Super Bazar – Notice by Official Liquidator u/s. 25F of Industrial Disputes Act, 1947 terminating services of regular employees – SLP before Supreme Court challenging winding up order – Scheme for revival of Super Bazaar – The petitioner in its bid for revival envisaged investment of Rs. 504 crores – Petitioner’s bid accepted – SLP disposed of in above terms keeping the order of winding up suspended – During period under petitioner’s management summons issued u/s. 7A of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 – Application before Supreme Court seeking withdrawal of summons – Constitution of Committee to look into certain issues regarding implementation of revival scheme – Committee in its report indicated serious impasse arising out of the non-implementation of the revival plan – Court directed refund of entire investment made by the petitioner subject to deduction of profits made during the period of arrangement – Direction to Comptroller and Auditor General of India to determine exact amount to be refunded – Official Liquidator was directed to bring to sale all the properties of Super Bazar – Properties were handed over by the petitioner to Official Liquidator – Contempt Petition by the petitioner seeking disbursement of certain amount received from the sale of property of Super Bazar – The net outstanding amount worked out by Comptroller and Auditor General (CAG), as against the claim of petitioner amounting to Rs. 126 crores, was Rs. 3.39 crores – Held: The conduct of the petitioner shows lack of bonafide in revival of Super Bazar – Having failed in reviving Super bazar, its claim for refund of entire amount it had invested, is contrary to the principles which govern winding up as well a statutory scheme embodied in ss. 89 and 90 of Multi-State Co-operative Societies Act; rr. 28 and 29 of Multi-State Co-operative Societies Rules and s. 11 of Employees Provident Fund Act – Verification made by CAG is final and binding – Official Liquidator to deal with petitioner’s claim to the extent set out by CAG in accordance with statutory order of priorities – Multi-State Cooperative Societies Rules, 2002 – rr. 28 and 29 – Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 – s. 11.
Dismissing the Contempt Petitions, the Court
HELD: 1. The purpose of the direction of this Court dated 29.03.2016 in nominating an auditor was to ensure a proper verification of the income and expenditure incurred by the petitioner and the profits earned from the Super Bazar establishment. Underlying the above direction of this Court was the necessity that the auditor conduct a due verification of the actual and genuine income as well as the expenditure which was incurred by the petitioner. That was premised on the assumption that in pursuance of the revival plan, a genuine effort had been made by the petitioner to revive Super Bazar. The circumstances which have come on the record as a result of the verification which has been carried out by the CAG upon the report of the auditor indicate several significant facets. The findings which have emerged in the course of the verification by the CAG leave no manner of doubt that the petitioner did not intend at any material time to embark upon the revival of Super Bazar. The business and affairs of Super Bazar were conducted in a manner that was sham and bogus. It dealt with related entities as explained in the report. The Transactions and the modalities followed are indicative of a lack of bona fides on the part of the petitioner in its operations. [Paras 26 and 27][102-B-D; 103-C]
2. No part of the order dated 29.03.2016 of this Court contains a direction to the effect that the petitioner would not be held to account, upon a verification by the CAG, for the nature of its dealings during the period when it was in management. To accept the submission of the petitioner that no deduction could be made from the investment which it had brought in save and except for profits actually earned would be a simplistic reading of the order of this Court. The entire process of verification of the income and expenditure was designed not only for the purpose of deducing the profits which was earned by the petitioner. The Court was also conscious of the fact that in devising the terms for exit of the petitioner, it was not appraised at that stage of the nature and extent of the dealings of the petitioner in its management of Super Bazar. The order of this Court therefore can only be read to mean that the petitioner would be held to account for the period when it was in management based on the result of the verification initially by the auditor and thereupon by the CAG. [Para 30][105-D-F]
3. The interpretation of the order dated 29 March 2016 must also be juxtaposed in light of the statutory provisions which govern an order of winding up under Section 89 and other cognate provisions of the Multi-State Co-operative Societies Act 2002. The statute lays down the manner in which the liquidator has to function upon taking charge. The Multi-State Co-operative Societies Rules 2002, in particular, indicate the procedure to be adopted by the liquidator and the manner in which the assets are to be applied. The order of priority is spelt out. A pro-rata refund of share capital appears third in the order of priority. The last in the order of priorities is a pro-rata payment of dividend on share capital at a rate not exceeding 6.25 per cent for the period of liquidation. To allow the claim of the petitioner to be refunded its entire investment amount, the major part of which took place through the subscription of share capital, would essentially place it outside the purview of the winding up proceedings. Accepting the claim would enable it to take away moneys overriding the order of priorities laid down by the Multi-State Co-operative Societies Rules 2002. The petitioner was one of the three bidders invited to bid for the opportunity to take over the management of Super Bazar and revive its operations. The petitioner was under no legal obligation to submit a bid. It engaged in a free-standing market process, albeit one supervised by this Court, through which the petitioner sought to turnaround the business of Super Bazar and subsequently receive profits from the business. This is supported by the conduct of the petitioner in squeezing out existing members and securing for itself 98.89 per cent of the share capital of Super Bazar. Having failed in its market endeavour to revive Super Bazar, it now seeks to exit its investment with a full refund and without having to account for the business which was carried on during the period when Super Bazar was under the management of the petitioner. Such a course of action would be contrary both to the first principles which govern winding up as well as the statutory scheme which is embodied in Sections 89 and 90 of the Multi-State Co-operative Societies Act 2002 and Rules 28 and 29 of the Multi-State Co-operative Societies Rules 2002. [Para 31][105-G-H; 106-A-E]
4. Section 11 of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) provides that where an order of winding up is made, dues owed towards employees’ provident fund (or any other liability mentioned therein) shall be paid in priority to all other debts in the distribution of the property or the assets of the entity which is being wound up. [Para 33] [107-A-B]
Maharashtra State Co-operative Bank v. Assistant Provident Fund Commissioner (2009) 10 SCC 123 : [2009] 15 SCR 1 – relied on.
5. The plea of the petitioner to receive payments at the present stage would confer on it a preference and priority which would be in the teeth of the statutory provisions contained in the Multi-State Co-operative Societies Act 2002 and the EPF Act. There is no substance in the challenge that has been preferred on behalf of the petitioner to the determination which has been made in the audit report following which a verification has been carried out by the CAG. The claim of the petitioner to the extent set out in the verification report by the CAG will necessarily have to be dealt with by the liquidator upon the realization of the assets of Super Bazar in accordance with the statutory order of priorities contained in the Multi-State Co-operative Societies Rules 2002. The verification made by the CAG is final and binding and shall not be called into question before the OL or in any proceeding. [Para 34][108-C-E]
6. The liquidator shall evaluate the claim as determined by the verification report by the CAG in terms of the priorities for the payment of claims as envisaged in the Multi-State Co-operative Societies Act 2002 and the associated rules. The liquidator is also directed to treat the amount outstanding to the EPFO in terms of the first priority which is created by the provisions of Section 11(2) of the EPF Act. The liquidator shall also consider the claim of the Union Government. The liquidator is directed to consider the auditor and the CAG’s observations with respect to the 14,149 new members inducted during WPL’s management not being genuine. The liquidator shall, in the process of winding up, be at liberty to consider all other claims received and to make a determination in accordance with law. In the event any further judicial determinations are required to be made, parties shall be at liberty to approach the High Court. [Para 35][109-A-C]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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