Chunar Cement Factory

1. U.P. State Cement Corporation Ltd. (UPSCCL) was declared as a Sick Industrial Company by Board for Industrial and Financial Reconstruction (BIFR) on 7-10-1992, and IDBI was appointed as the Operating Agency. Cemtech India was appointed by UPSCCL to prepare a techno - viability report which was submitted in July, 1994. As on 31-3-1994, the accumulated losses of UPSCCL were Rs. 319.81 crores as against the share capital and reserves of Rs. 68.29 crores. Company did not submit any rehabilitation proposal or comments on the report submitted by Cemtech and thus BIFR directed the company to submit an alternative revival plan to the Operating Agency. The workers were also directed to submit rehabilitation proposal with the help of Tata Consultants within two months indicating the means of finance. No proposal was received by the Board within the time indicated. By the same order of the BIFR dated 28-12-1993, the State Bank of India, Allahabad Bank and IDBI were directed under Section 21 of the Sick Industrial Companies (Special Provisions) Act 1985, to prepare a complete inventory of all assets and liabilities and lists of registers/records/documents of shareholders and creditors and to get valuation done and to report the matter to the Board. Since no proposal were received the Operating Agency issued an advertisement for change in management on 6/8-3-1995. Four offers were received in response to the advertisement. The Operating Agency was required to examine the relative merits of the proposals. The State Government was also required to indicate their view regarding their equity of Rs. 68 lacs, and loans of Rs. 50 crores to UPSCCL in the event of privatization. Out of the four proposals, Gujarat Ambuja Cement Ltd., informed that they are not interested in the take-over and Dalmia Industries Ltd. did not submit any proposal. Dalla Sharamik Sangthan and U.P. State Cement Corporation Workers Industries Co-operative Society submitted proposals. The Operating Agency did not consider these proposals to be support worthy. In view of the employment of about 6000 workers, on the request of State Government, the Operating Agency was required to issue a fresh advertisement and to approach the resourceful parties to make reasonable efforts to locate resourceful parties to submit offers. Fresh Advertisement was issued on 24-11-1995. The Operating Agency also approached about fifteen major cement companies, but no concrete proposal was received. Dalmia Industries Ltd. H.B. group and Khandelwal Cement Ltd. sought time to submit proposals. They sought waiver of entire interest on term loans of financial institutions and bank which was not acceptable to them. Both the bidders were directed to deposit a some of Rs. 5 crores each in an interest bearing 'No Lien' account with the lead Bank by 15-2-1996, and the Operating Agency was directed to examine the proposals. H.B. Group submitted a proposal and requested for some information and visit to unit.

Opportunity was given to visit the units and to have a meeting with the State Government to settle the terms and conditions. No agreed comprehensive proposal came forward for consideration. The proposals of H.B. Group did not inform to any norms of one time settlement. The Financial Institution and Banks were also not prepared to enter into a fresh term loan agreement. The proposals required the State Government to induct fresh funds on which the State Government did not give its views. The Workers union did npt agree to enter into any kind of agreement with H.B. Group. After giving opportunity to the State Government to convey their view in the matter, the Board directed that if no comprehensive rehabilitation proposal was received from the State Government by 7-11 -1996, an opinion to wind up the company would be issued. Since the State Government requested for further time to constitute a Committee whose Chairman was to be nominated by the State Government, the Board looking into the circumstances, in which accumulated loss had increased to Rs. 380 crores and four years time had been spent in finding out and exploring all possibility of rehabilitation formed a prima facie opinion that the company was not likely to make its net worth positive within a reasonable time, while meeting all its financial obligations, and was not likely to become viable in future, and that it was thus just equitable, and in public interest that it should be wound up under Section 20(1) of the Act. A show-cause notice was issued on 18-11-1996,

2. On 6-2-1997 the Board found that H.B. Group had withdrawn their proposal and obtained refund of the amount. It gave a further opportunity to the company. State Government and Workers to submit a comprehensive twice. A revival proposal was submitted on 26-3-1997 for closure of two production lines, modernization/expansion of existing facilities. OTS of the dues of financial institution and banks, VRS as well as various concessions from the State Government including of induction of fresh funds for OTS, waiver of interest and conversion of their loans into equity. Operating Agency reported that the corporation will require interest free funds of order of about Rs. 250 crores for two years of implementation of scheme and that the State Government has not communicated their commitment to induct requisite interest-free funds in the corporation for its revival. Subsequently the Operating Agency by its letter dated 17-6-1997 informed that even during the extended period they have not received any communication from the Government of UP, and thus Board concluded that the promoters were not serious about rehabilitating the company, and that there was no rehabilitation proposal with means of finance fully tied up before the Board for consideration despite ample opportunities having been given to all concerned. The Board, thereafter confirmed this prima facie opinion that the company is not likely to make its net-worth exceed the accumulated losses with a reasonable time while meeting all its financial obligations, and that the company as a result thereof is not likely to become viable in future, and hence it should be wound up under Section 20(1). This opinion of the Board in its order dated 2-7-1997 was forwarded by the Registrar of BIFR vide its letter No. 60792-B-III dated 9-7-1997 to this Court which was received on 14-7-1997 in the Registry and on 17-7-1997 in the company section, and was registered as Company Application No. 4 of 1997.

3. Aggrieved by the aforesaid order of the BIFR the company filed an appeal No. 169 of 1997 before the AAIFR on 8-8-1997 which was admitted and the operation of the order of BIFR was stayed. The company moved an application No. 62817 dated 24-9-1997 on 25-9-1997 for staying the proceedings before this Court. Appeal was dismissed on 19-2-1998 upon, which the Chief Standing Counsel for State of U.P., filed an application No, 40402 of 1998 (A-8) under Section 20(2) of the Sick Industrial Company (Special Provisions) Act, 1985 dated 14-7-1998 filed on 15-7-1998 inform- ing the Court that the appeal has been dismissed on 19-2-1998 praying that the Court may order winding up of the UPCCL, and appointed an Officer as official liquidator of UPCCL having all the powers of Official Liquidator under the Act. This application was supported by the affidavit of Sri Vishwa Nath Dubey, Upper Division Assistant in Industrial Development Department, U.P., Lucknow. Thereafter an application No. 43683 of 1998 was filed by the State Government through Chief Standing Counsel on 24-7-1998 for listing the matter for orders for appointment of liquidator. An Application No. 44062 of 1998 was filed by the company on 27-7-1998 through its counsel Sri Shiv Nath Singh for winding up of the company and to appoint Official Liquidator as liquidator of the company along with affidavit of Padam Singh, Managing Director of U.P.C.C.I. Churk, Mirzapur.

4. Cement Workers Union (CITU) an 13 other trade unions filed a Writ Petition No. 15134 of 1998 challenging the order dated 19-2-1998 passed by AAIFR and the order dated 2-7-1997 passed by the BIFR. They filed an affidavit (A-12) in this company application to keep the proceedings in abeyance till the disposal of the Writ Petition. The State Government filed a reply to the aforesaid application filed by the Cement Workers Union in the form of Affidavit of Sri K.L. Meena, Special Secretary, Government of U.P. Industrial Development Department, Lucknow, for rejection the application to keep the winding up proceeding in abeyance on the ground that UPSCCL is incurring losses. In detailed objection in the form of affidavit he gave reasons for losses suffered by the company. In para 9 it was stated that UPSCCL has on its rolls, including casual muster roll 5300 workers and that the major reason for the sickness of the Sick Company were financial, productive, technical, raw material, managerial and marketing problems. In paragraphs 10 to 35 he spelled out the reasons of financial losses which included the old and completely worn/out factory of Churk plant. The second plant of the Sick Company at Dalla, Cement Factory was installed and commissioned in the year 1970-71. It was stated that dry process cement plant established by the company for clinker production at Dalla and Grinding unit commissioned in 1982, could never produce/ manufacture to its full capacity. The maximum production, was achieved only in the year 1986-87, of 10.34 lacs metric tone against the installed capacity of 16.80 lacs tones, which over the year have come down to approximately 2.2 lacs metric tones per year. The dry process plant was set up after taking huge amount of loan from financial institutions which the corporation failed to pay and that the bank and financial institutions have refused to give any further financial assistance to the company. The company was unable to met competition from private sector which manufacture about 90 per cent of the installed capacity of cement. In paragraphs 36 to 45 Sri K.L. Meena mentioned about the steps taken by the BIFR to explore the possibilities of rehabilitation. He stated that the workers union had given exaggerated statement of surplus assets based on the report of Chartered Accountant in pursuance of the orders of this Court in July, 1998 claiming Rs. 151 crores as surplus assets which is self contradictory to the stand of the workers union before the Board as well as before the High Court in the Writ Petition in which the workers unions have claimed surplus assets to be not more than five crores. In the writ petition the workers' union filed a fresh rehabilitation scheme in which the surplus assets were shown to be of 23 crores. In para 46 he stated that as the three units of the company were not able to comply with the prescribed standard of emission norms in its various sectors on which the Central Pollution Control Board on 16-6-1997 has issued directions under Section 5 of the Environment (Protection) Act, 1986, and directed the company to stop their operation in all their three units. In the same paragraph it was stated that the continuous running of the company is causing disastrous effect on the natural vegetation/inhabitants of the area. In paragraph 59, he referred to the case of Rohtas Industries Ltd., Dalmia Nagar in District Rohtas Bihar reported in 1986 (86) Company Cases, Page 1, in which the Apex Court entertained the writ petition during the pendency of the winding up before the Patna High Court and experimented with adopting various alternative schemes for rehabilitation of that industry with the help of the BIFR and after keeping the winding up proceeding in abeyance for years together, concluded that inspite of the best efforts the object to revive the company does not appear feasible and held that in these circumstances, the future course of action and while bringing end to the proceedings directed, the winding up proceedings before Patna High Court be resumed, Sri Meena concluded that in view of the facts and circumstances enumerated by him and in view of Rohtas Industries experiment, the Court may order winding up of UPSCCL rather than entertaining similar rehabilitation scheme, as were submitted before the Board and were not found viable by the Board.

5. In his aforesaid affidavit Sri K.L. Meena also submitted that since 1992 the State Government has directed sales tax deferment to the sick company for a period of 5 years with a benefit of approximately 50 crores as financial assistance which did not include latest payment of Rs. 11.25 crores given to the corporation as an aid for payment of wages/salaries to employees for a period of 4-1/4 months. The company is not paying the taxes, royalties and that no measure whatsoever, has been taken by the State to recover the same. It has been provided electricity and other facilities, for which the company is not making payment for the last several months. It was categorically mentioned that the State Government is neither in a position to invest hundred of crores rupees in the present sick company, and thus experiment without surety of rehabilitation of the company. He stated that the State Government had communicated to BIFR about the State Government's decision of not being in a position to invest huge amount of hundred of crores of rupees which was proposed by the Operating Agency; that the decision of the State Government was never reversed and that the State Government has not been in a position to further invest huge amount as required by the Operating Agency. At present there are no assets whatsoever, what to say about the surplus assets free from encumbrances of the company and all assets of the company are mortgaged with the financial institutions and banks, including the Industrial Development Bank of India, against the loans taken by the sick company. Neither the corporation nor the State Government has control whatsoever on the realization arising but of the assets, as first charge on these assets vests with financial institutions/banks. He thereafter submitted that fallacy in the report of Chartered Accountant based on the valuation of report of M/s. S.K. Ahuja and Associates, Kanpur and Valuation Report of A.F. Fargusan and Company, in which the findings were contradictory. It was mentioned that S.N. Singh and Company has further estimated figures of the assets and the justification to calculate value of the school building which are to run as Government Institutions and valuation of land are high in the backward area. This affidavit running into 113 paragraphs given by Sri K.L. Meena, Special Secretary, Industrial Development Government of U.P. summarized the position of the State Government and its objection to the rehabilitation proposals of the Cement Corporation Unit.

6. Writ Petition No. 15134 of 1998, was dismissed by this Court on 8-12-1999 with observations that in case the assets of company are sold, the workers will be given first priority in payment. The operative portion of the order is quoted as below :

"In the last, the learned counsel for the petitioner submitted that the workmen had been working in the sick unit. They are entitled to Wages till the winding up order is passed. This submission was also raised before the Board and it noted the submission in the meetings held on 26-9-1996 and observed as follows :

In case the State Government decide to wind up the corporation they should do so and pay all the dues of the labour. The present Government has different policy regarding sick P.S.Us as compared to the previous Government and the workers are hopeful that a favourable view will be taken in this case.

There is no reason why the workers be not paid their salary. In view of the above discussion the writ petition is dismissed against the recommendation of the Board dated 6-2-1997, and the order of the appellate authority dated 19-2-1998. The Writ Petition, in so far as the direction in the nature of mandamus commanding respondent No. 4 to make payment of all dues to the workmen for the period till today, is allowed. In case respondent No. 4 is not able to pay the amount on winding up of the corporation, the payment shall be made to the workers prior to making any payment to any person in accordance with Section 539A of the Companies Act, 1956. The writ petition, as against the other reliefs claimed in the writ petition, is hereby dismissed."

The Cement Workers Union and others filed Special Leave Petition No. 7796 of 2000, between Cement Workers Union (CITU) v. Board Industrial Finance and Reconstruction, against the orders of this Court which was dismissed by Hon'ble Supreme Court on 9-5-2000.

7. The workers also filed objections to the winding up of the company in this company petition. These objections were considered by the Court. After finding that the writ petition has been dismissed based on the same ground on which the objections were filed, the Court concluded that the opinion of BIFR does not suffer from any illegality. Accepting the opinion of BIFR the corporation was directed to be wound up by order passed on 8-12-1999, with a direction to the official liquidator to take appropriate action in accordance with law. A Special Appeal No. 38 of 2000 filed by Cement Workers Union and others against winding up order was dismissed on 31-7-2000.

8. The Statement of affairs of the company in pursuance of Section 454 of the Companies Act, 1956, on Form 157 verified by Sri Yashpal Sharma, the company secretary on 6-3-2000, was submitted to official liquidator with a copy to the Registrar of the Companies on 22-3-2000.

9. An application No. 11 of 2001 was filed by Allahabad Bank praying that the Court may exempt the properties, detailed in annexures 2 and 3 of the application for winding up/liquidation proceeding on the allegation that it had given loan and credit facility to the corporation and the company had hypothecated certain properties with it under an agreement dated 31-3-1981. The application was dismissed by the Court on 8-12-1999 with the following observations :

Application No. 11.

"This is an application filed by Allahabad Bank, praying that the Court may exempt the properties detailed in annexures 2 and 3 of the application from winding up/liquidation proceedings, on the allegation that it has given loan and credit facility to the corporation and the corporation has hypothecated certain properties with it under an agreement dated 31-3-1981.

The applicant claims to be secured creditor. A secured creditor is entitled to preference for realization of its amount under Section 529A of the Companies Act, 1956. The secured creditor cannot claim that the properties which have been hypothecated should be exempted from winding up. The winding up order is not to be passed in relation to a particular property. It consists of the whole assets of the company. The applicant has a right to submit its claim before the official liquidator. The application is accordingly dismissed."

10. Application (A-16) filed by employees (thirty seven in number) of the company (in liquidation) was also disposed of with the observation that these applicants can claim such relief for appropriate proceedings before the appropriate authority. Applications A-21 and A-22 filed by Balaji Trading Company was disposed of on 13-4-2000 by giving permission to the applicant to continue the arbitration case before the arbitrator Mr. Justice G.B. Singh (retired) in proceedings in O.S. No. 281 of 1999.

11. At this stage, the subject application No. 47788 of 2001 (A-31) was filed on 17-5-2001 by the State Government with a prayer to direct official liquidator for taking appropriate steps in the light of the order dated 8-12-1999 passed by this Court after giving due consideration, and considering the offer made by Grasim Industries Company, and IDBI, so that the liability of the company may be discharged/paid, and the interest of the labour and other staff of the cement corporation may be protected. It is opposed by Allahabad Bank in its application No. 50506 of 2001 filed on 24-5-2001 with the prayer that the application for permission to sell the assets of the corporation be dismissed.

12. The application filed by the State Government is supported by affidavit of Sri Hari Krishna, the Secretary, Heavy Industries, Government of U.P. Lucknow. He has stated that the official liquidator was required to take immediate steps after winding up order. However, no effective results have been achieved in pursuance of the directions given by this Court as such the State Government in order to assist official liquidator to expedite the matter and for ensuring compliance of Court's order dated 8-12-1999 and to save public money, and since the Labour Union and other staff of the U.P. State Cement Corporation Ltd., were continuously pressing for payment of its wages etc., published an advertisement in newspapers inviting tenders for taking over Cement Plants of the U.P. State Cement Corporation Ltd. In the said advertisement it was mentioned that company is being wound up by the High Court of Judicature at Allahabad, on the recommendation of BIFR, hence the said tender would be subject to the clearance by the High Court and BIFR. A copy of the advertisement made in the newspaper 'The Economic Times' dated 10-2-2001, and the newspaper 'Business Standard' dated 12-2-2001 has been filed as Annexure A-4. In the said advertisement the last date for the interested parties for submitting their bids was 31-3-2001 by 3.00 P.M. The State Government extended the last date for submitting bids with regard to aforesaid matter by 30-4-2002 to get worth while offers, and published it in 'Economic Times' on 31-3-2001. In the advertisement published in the newspaper the Government of U.P. announced/declared a number of reliefs and concessions to be granted by the State Government. It is submitted that the State Government adopted a very transparent process by duly advertising which make package of incentive very clear. Three Cement companies initially showed interest, however, finally only one company namely Grasim Industries Ltd. came forward and submitted an offer on 30-4-2001 which was otherwise also valid as per tender notice. The bid submitted by Grasim Industries Ltd. was in two parts, which was opened by the concerned committee constituted for the purpose. The note of the committee has been annexed as Annexure A-6, which shows that the committee consisted of following officials:

1.Commissioner Industrial Development - Chairman

2.Secretary, Small Industries Development - Member

3.Secretary, Finance Department - Member

4.Secretary, Heavy Industries - Member

5.Managing Director, UPSIDC - Member

The committee opened single tender on the stated reasons that the unit has closed production, its machinery is diminishing, five thousands and more employees are facing uncertainty and that such a big production capacity is suffering loss, and further that after two advertisements only one tender has been received.

13. The tender is in two parts namely qualifying offer of first part of Rs. 195 crores, towards settlement of dues of Banks and Financial Institutions and with employees, and part II of the said bid contains a proposal of Rs. 35 crores towards VRS scheme of the staff of State Cement Corporation Ltd. and Rs. 11 crores as over and above the amount given in the bid. The total offer of Grasim Industries Ltd. was does found to be of Rs. 241 crores. In para 15 of the affidavit it has been stated that the advertisement was made subject to sanction given by the High Court, and as such the Secretary, Heavy Industries along with communication letter sent by A.P. Singh, Industrial Development Commissioner/Principal Secretary, Government of U.P. personally met official liquidator on 3-5-2001, and tendered copy of the said communication along with other relevant documents. The official liquidator did not accept the said communication, and required it to be submitted before the Court. It has been stated that the communication of the State Government was to assist the official liquidator so that on one hand in compliance of the order dated 8-12-1999 passed by this Court should be ensured and the staff of U.P. State Cement Corporation, Financial Institution as well as public money can be saved. Paragraph 17 of the affidavit, relates to the dues of the financial institution. It is stated that the Secretary, Industrial Development Government of U.P. met the Chairman and Managing Director IDBL In this meeting it was indicated that the financial institutions will be willing to settle the dues against UP State Cement Corporation on payment of principal amount. In support of this averment the affidavit encloses a note of Secretary, Industries Development which has been marked as Annexure A-8. The said note is not enclosed with the original affidavit, instead minutes of the committee dated 30-4-2001, on the date of opening of the tender has been annexed with the affidavit.

14. Coming to the advertisement made by the State Government in 'Economic Times' dated 10-2-2001 and 'Business Standard1 dated 12-2-2001, it is necessary to quote the advertisement to understand the true nature of the invitation of offer. The advertisement is quoted as below:

U.P. State Cement Corporation

(A Government of U.P. Undertaking under liquidation) TENDER NOTICE FOR TAKE OVER OF A CEMENT PLANT

Government of Uttar Pradesh invites offer from interested parties for take over of U.P. State Cement Corporation, on the basis of two part bid offer.

First part of bid would contain an Unconditional Acceptance clearing the outstanding workers retrenchment benefits to all the workers and the one time settlement dues for financial institutions and B. The amount expected for this is Rupees One Hundred Ninety Five Crores. This would be qualifying offer part of the bid would be an offer and above the qualifying offer. IInd part of the bid of only such bidders be opened who have tendered unconditional acceptance of first part (qualifying bid).

The Highest Bidder of Part II would be awarded the tender immediately

Reliefs and Concessions

Government of Uttar Pradesh would be ready to :

1. Write off all past Government loans with interest of the company.

2. Write off all Electricity/Trade Tax/Royalty dues.

3. Offer Trade Tax exemption to the unit for Ten years.

4. Offer waiver of royalty dues for Ten years.

5. Renew the Lime stone leases in favour of the company.

6. Power load of the new plant would be sanctioned and required power supply ensured.

7. Electricity Duty Exemption would be granted on any captive power generation facility set up by the promoter for this plant.

Properties on Offer

Include the lime stone lease at Ninga & Kajrahat having over hundred million tonnes of lime stone deposits adjacent to the factory site. Report of Director of Geology and Mining regarding quantity and composition of stone shall be attached to the tender form. The existing plants at Chunar and Dalla and all other properties of Corporation are included in the offer, minus the land at Churk plant and lease of Gurma land which would vest the Government of Uttar Pradesh.

Legal Status of the Company

The company is under liquidation under the orders of Hon. High Court, Allahabad on the recommendation of BIFR. Therefore, the above tender would be subject to clearance of Hon. High Court and the BIFR.

Last Date

Interested parties must submit their part bids by 31 -3-2001 by 3.00 P.M. to the Secretary, Industries Development, Government of U.P. Room No. 423, Secretariat Annexe Bhawan, Lucknow-226, Phone No. 0522-239280, Fax: 0522-239235, e-mail: Harry @ upindia or epbup@satyam.net.in.

Tender papers

Tender papers and information memorandum about the company giving complete details of the assets by obtained from the above address on all working days on payment of Rs. 5,000 through a Bank draft in favour of U.P. Government Tender Form can also be downloaded from the internet from website www. upindia. or www.epbupindia.com and the requisite fee for the forms can be submitted along with the bid. Site inspection would also be arranged if required.

Earnest Money Deposit

The tendering party would have to submit their bids along with an earnest money deposit (refundable Rupees Five Crore in the form of a Bank draft) in favour of Uttar Pradesh Government, Lucknow.

15. The Memorandum of information (including guidelines for submitting of tenders) titled as invitation for offer for sale to U.P. State Cement Corporation marked as confidential and valued at Rs. 5,000 is enclosed as 'appendix 6' to the affidavit. The document gives the background, liabilities statements, history, details of the lease rights to be transferred, details of properties of the corporation, silent features and USP's of this offering, guidelines on submission of offers format for submission of bids and Annexures - Reports of Directorate of Geology and Mining on Kajrahat and Ninga Mines.

16. In the background it has been stated in the memorandum of information that U.P. State Cement Corporation Limited is State Government undertaking registered as a public Limited Company under the Indian Companies Act, 1956. The entire share capital is held by the Government of U.P. through the Governor of U.P. or his nominees. It has the largest installed capacity for manufacturing of cement. The four units of the company are situated at Churk, (wet process) commissioned in 1954 and 1962, installed capacity (i) Clinker 4.56 Lac MT and (ii) Cement 4.80 Lac MT; (2) Dalla (wet process) commissioned in 1971-72 installed capacity (i) Clinker 3.80 Lac MT and (ii) Cement 4.00 Lac MT; (3) Dalla (Clinker Unit) (Dry process) commissioned in 1983-84 installed capacity 8 Lac MT; and (4) Chunar (Grinding Unit) commissioned in 1983-84 with installed capacity of Cement 16.80 (Lac MT). In the Liabilities statement as on 8-12-1999 is shown as share capital of 68.28 crores and total of 879.98 crores towards loans and current liabilities. The break-up of these loans and current liabilities is given as below :

(i) Long term loan from FIs/Banks:

(a) Principal - 54.20

(b) Interest - 235.42

(ii) Working Capital Loans - 4.65

(iii) Loans from State Government - 165.80

(iv) Current Liabilities :

(a) Salaries and wages etc. - 106.64

(b) Electricity Dues - 110.70

(c) Outstanding Sales Tax - 67.10

(d) Royalty on Lime Stone - 20.10

(e) Suppliers payment etc. - 47.09

17. The offer of Grasim Industries Ltd. have been annexed to the application as 'Appendix 2'. This offer dated 30-4-2001. Reference Grasim Industries Ltd. as a Aditya Birla Group with turnover for the year ending March 2001 to be more than 5,000 crores. It encloses and demand draft dated 27-4-2001 drawn on State Bank of India payable at Lucknow for Rs. 5 crores and accepts to pay to the Government of Uttar Pradesh, to clear the outstanding dues, retrenchment/VRS benefits to all workers of the corporation and to enter into one time settlement by the Government of U.P. with the financial institution and banks, on the outstanding long-term loans of the corporation, as detailed in Memorandum of Information and offers a total amount agreed towards liability amounting to Rs. 195 crores. The annexure to the bid gives the condition upon the offer. These conditions requires sale transfer of the undertaking to be passed within six weeks or the time mutually agreed from the date of the bid; all claims of secured and unsecured creditors, employees, officers and executors, wages, arrears in PF and ESI retrenchment compensation etc. to be paid out of the consideration price and no liability beyond the bid amount and further the bidder did not assume any obligation for payment of any claims for secured creditors or unsecured creditors, employees, officers, executors etc. including sales tax, income-tax, excise, royalty tax and all other taxes and any other dues of Central Government and State Government of Indian Railways beyond the bid offer Confirmation from workers, employees and officers or any staff or contract or subject to the re-employment, lease and extension of lease for limestone as listed in Schedule IV of the Memorandum to be granted/renewed in the name of the bidder on the same terms and conditions on which it was granted to UPSCCL without liability of payment of any arrears or other dues and the agreed consideration to be paid as full and final payment with no liability if arises in future beyond the consideration. The final order of the High Court in the condition required to be fully effective and binding and in case any appeal or with or special leave petition, stay order has been understanding to have deemed to have become final until appeal, with or SLP is rejected and the time for filing appeal, writ or SLP has expired. The bidder required evidence/representation from the Governor of U.P. that all dues payable to U.P. Government shall be waived. Sales-tax exemption on sale without any ceiling of amount will be available to the bidder for a period of 10 years from the date of handing over possession and royalty tax exemption on limestone will be available to the bidder for a period of 10 years in case any land has been acquired the permission of State Government under Section 44A of the Land Acquisition Act, 1984 for sale of transfer of the property in favour of the bidder and no additional/ further payment shall be required to be made or if the land has been required by private purchase by UPSCCL to arrive and clear and marketable title free from encumbrances to the land and its weight to transfer the same without requiring any permission/approval or sanction of any statutory or other regulatory agency and that all taxes including land revenue shall be paid by UPSCCL. The bidder further required evidence of all these payable to the bank and financial institutions, all guarantees, warranties and indemnities of the suppliers of machinery is continued to the value to the bidder, evidence that electricity company, water works and all other utilities shall continue to provide on same terms and conditions. The conditions further continued up to 20 items which need no require further elaboration. In fact the bidder required all reliefs and concessions, guarantees and no liability towards any financial institutions, State Government, Government Department or employees. One more significant condition No. 15, required that on the sale, the bidder has assumed that there remained no amount payable on the deeds of transfer and sale or assets or any other documents and vacant possession of the land, houses, colonies, plant and other assets be given. They also required copies of title deeds of land including copy of mining leases including electricity duty exemption on captive power plant and railway sidings/ agreement or arrangement with UPSCCL and India Railway authorities should continue to Grasim silent assets.

18. Allahabad Bank has filed Civil Misc. Application No. 50568 of 2001 on 24-5-2001 with a prayer that permission of sale of assets of the corporation be dismissed with costs. It is stated that Allahabad Bank is secured creditor of UPSCCL and the State Government of U.P. is guarantor of the whole extent of the debts. The Bank filed claim petition against UPSCCL and State Government of U.P. as guarantor for recovery of Rs. 87,15,71,259.72 as on 22-4-1999 calculated up to that date in the Debt Recovery Tribunal, Jabalpur being claim petition Original Application No. 149 of 1999 which has been transferred to Debt Recovery Tribunal, Allahabad and registered as Transfer Application No. 1464 of 2000. Notices have been served on the Corporation and the State Government but they have not filed and written statement and in the mean time winding up order was made on 8-12-1999. An application for injunction against the Corporation and the State Government for transferring, alienating or otherwise dealing with or dispossessing off any property and assets, is pending before the Tribunal. Notices have been sent to the Chief Secretary of the Government of U.P. and the Corporation, but they have not appeared. They have not filed any counter affidavit and have neglected to appear in the matter, and have instead filed an application for permission/approval for the sale of the assets. It has been submitted that provisions of the Central Act No. 51 of 1993, override the provisions of the Companies Act, 1956, conferring exclusive jurisdiction in respect of the adjudication of the claim and execution of the final order on the Tribunal and the Recovery Officer in respect of the debts payable to the bank, and that there can be no interference of the Company Court in respect of payment due to bank payable before Debt Recovery Tribunal. It is lastly alleged that the application of Government of U.P. and Corporation is mala fide and is not maintainable.

19. Arguments were heard on 25-5-2001. The matter was thereafter directed to be heard after vacations. On 25-7-2001 the Court called for report of the official liquidator with regard to handing over of the possession of the plant and machinery and other assets after preparing inventory. Directions were given that the official liquidator and his staff will be provided security for taking over the possession of the property of the company. The Chief Standing Counsel stated that he is in a position to hand over inventories to the official liquidator.

20. On 6-8-2001, the Court was informed that the financial institution which had finances the company (in liq.) held a joint meeting on 2-8-2001 to consider the proposal of the Government of Uttar Pradesh for one time settlement. The meeting which was attended by officials of Allahabad Bank, State Bank of India, IDBI and the officials of Government of Uttar Pradesh was adjourned on the request of Allahabad Bank and State Bank of India to consider the proposals. The process of taking possession of the assets began on 22-7-2001. On the same date, the court issued notices to all the officers and Workers Union who were petitioners in Civil Misc. Writ Petition No. 1534 of 1998 decided on 8-12-1999, to assertion their views on the application (A-30) filed by the State Government. On the next hearing the official liquidator reported that possession of the units at district Mirzapur and Sonbhadra has been taken. The District Magistrate, Mirzapur has accepted the supurdagi of the assets. Mr. V.K.S. Chaudhary, Senior Advocate, appearing for the Allahabad Bank submitted that he has not concluded his preliminary objection to the application filed by the State Government. The State Bank of India reported that the consortium meeting had not reached any decision and that the State Bank of India is not inclined towards the offer of the State Government made to them through IDBI. An application was filed by Bharatpur Nutritional Products Ltd. (Dalmia Industries Ltd.) for staying the consideration of the application filed by the State Government for sale of assets to Grasim Industries Ltd. On this Court observed that injunction order dated 25-5-2001 directing that no sale or transfer of possession of assets of the UPSCCL (including the mortgaged assets) will be made without the leave of the Court making it clear that this injunction will not operate against Recovery Officer of the DRT, if and when the claim of the bank is decreed, was already operative. The Cement Workers Union filed an application through counsel Sri Saumitra Singh supported by affidavit of Sri Laxmi Kant Shukla, representing 15 unions a list of which was included with Vakalatnama. It was found that notice to the employees and workers were dispatched only on 23-8-2001, and thus the matter was adjourned to 19-9-2001. Then the functioning of this court was effected by prolonged strike of Advocates for 75 days, on the issues of a bench in Western U,P. The Court, however, functioned and heard matters, in which personal appearance were put by the litigants. The court has held proceedings in this matter on 10-9-2001, 20-9-2001, 22-9-2001, 3-10-2001, 29-10-2001, 30-10-2001 and 5-11 -2001. In between the official liquidator submitted his report Nos. 113, 114 and 115 of 2001 with regards to various matters, including application of State Government to consider the offer made by Grasim Industries Ltd. (report No. 114 of 2001), report No. 114 of 2001, was filed in compliance of direction of the Court to find out the views of State Government on possibility of sale of assets by advertising for exploring higher offer made to the official liquidator and report No. 115 of 2001, for giving direction to the District Magistrate, Principal of College, schools, hospitals, employees, workers and officials to deposit the rent of the building occupied by them giving authority to District Magistrate to realize the rent.

21. In pursuance of the orders passed by this Court on 20-9-2001, the official liquidator submitted his report No. 129 of 2001 in which the report to the Court that in response to his letter dated 9-1-2001, sent to the State Government, he has been furnished a reply by the Secretary, Industrial Development Department of Government of U.P. by Fax Message dated 30-10-2001. In this reply the Government of U.P. intimated that it does not support the move for re-tendering through official liquidator due to the reasons, namely, (1) that it will unnecessarily delay the revival of the unit through privatization; (2) idea is to transfer the unit concern and not merely disposal of the assets; (3) there is no guarantee for re-tendering through official liquidator will get a higher bid, and (4) that other institutions have also to agree to this move, and that the reliefs and concluding that the concessions offered by the Government of U.P. can remain valid for the moves, only if the points mentioned above are taken care of. The Court found that the submission of Sri Ashok Mehta, the learned Chief Standing Counsel were not in consonance with the communication sent by the State Government in writing to the official liquidator. The matter was pending since 17-5-2001, based on assumption that the Banks and financial institutions have agreed to one time settlement which was one of the basic conditions of the invitation of offer but inspite several adjournment the time the Banks did not come out with any categorical statement with regard to one time settlement. In the meantime the employees were facing several difficulties and complaints were received with regard to water and electricity supply, transportation, staff of schools, teachers, supply of essential drugs in hospitals. It was made clear that the Government Officials are responsible to provide these facilities inspite of the fact that the company had. been wound up, and that the citizens of this country cannot be deprived of basic amenities on the ground that they are employees the erstwhile wound up Government company. Serious concern was expressed on the complaints against to executing officers, who trying to occupy and to put the properties of the company (in liquidation) to be misused by removing air-conditioners furnitures etc. from the offices and guest house buildings. The standing counsel assured the Court that these complaints were looked into by the State Government. On 22-11-2001, the chief standing counsel filed report of Sri N.K. Agarwal and Associates, Kanpur with regard to revaluation of the land, building, plant and machinery of the company (in liquidation).

22. The State Bank of India filed application giving terms of compromise on which the State Bank of India has agreed to accept compromise proposal. The application was not supported by affidavit of any officer of the bank and it was submitted that the matter is under consideration with the Board of Director of State Bank of India. Adjournments were sought to file an affidavit supported by approval of the Board of Directors of the Bank. The Court directed that the copy of application filed by State Government shall be circulated to the official liquidator and other financial institutions and Allahabad Bank inviting their comments. The learned chief standing counsel was directed to produce the entire record pertaining to invitation of offer and acceptance of offer by the committee constituted by the State Government for perusal of the Court. On 4-12-2001 an affidavit of Sri Hemant Bansal, Chief Manager of State Bank of India, Ghosia, District Sant Ravidas Nagar was filed confirming the contents of application filed on 29-11-2001 and stating that the condition of settlement of the matter with the Bank are subject to the approval by the Board of State Bank of India and it will take about two weeks time for the Bank to consider the matter. The counsel appearing for the State Government informed the Court that the Secretary Industrial Development has gone abroad and is likely to return back on 6-12-2001 and thus the matter needs re-examination of the proposal submitted by the State Government.

23. The arguments were heard on 10-12-2001, 11-12-2001 and thereafter on 14-12-2001. Upon hearing counsel for the State Government and after examining the record which contained a note submitted to the cabinet for approval, the court found, that inspite of all the departments of State Government including the Department of Finance, Sales-Tax, Electricity and Law, opposed for the move of rehabilitation on the ground that the departments shall not been able to bear any further financial burden.

24. A copy of the note put up before the cabinet was placed by the chief standing counsel and was taken on record. A perusal of this note shows that it was prepared after seeking comments of the Department of Law Industrial Development, Sales-Tax Finance and Electricity. The Principal Secretary, Legal Remembrance, Government of U.P. advised Government of that official liquidator has been appointed through High Court and thus to remove his appointment proceedings should be undertaken under Section 166 of the Companies Act, 1956, and only thereafter according to proposed procedure, the assets of the UPSCCL can be transferred by privatization. He put a query that there is no clarification as to how 254 acres of land and building at Chunar and 564 acres of land at Gurma is left from sale, and it was proposed that the position should be made clear before the cabinet and the decision of the cabinet be obtained. The tax department proposed that if the rehabilitation is to be made by privatization the department has no objection, to exempt the arrears of trade tax on 67.10 crores, but it did not agree for giving 10 years rehabilitation for trade tax as grounds that before the date of approval by the High Court there is no justification to give 10 years rehabilitation. A trade tax is an indirect tax in which the seller collects the tax from purchaser and deposits in the Government Treasury. This benefit will not be passed on to consumer public and shall be confined to entrepreneur. It was recommended that such incentive is against the agreement with the Central Government and will amount to giving unlimited rights to a private entrepreneur which will exhaust the raw material in the limited period. It found that at present all units are exempted from trade tax on purchase of raw material, and thus the benefit of exemption on finished product is not justified as it will also come in the way of application of VAT system. Industrial Development Commissioner opposed the exemption of arrears of trade tax and full exemption of 10 years on the ground firstly that in the Chief Ministers meeting it was decided that no such benefit will be given to any industry and if such benefit is extended the Central Government may stop giving assistance to such State Government. Secondly, there is no justification to give 10 years exemption from trade tax and from registration fees as there may not be difficulty in selling unit without giving such exemption. Thirdly he stated that exemption may discourage efficiency of sale of cement in the State and that the amount of profit to the promoter which shall not be estimated. He said that this profit can be somewhere between Rs. 300 to Rs. 3000 crores. According to him information regarding the maximum production of cement has not been given by the Industrial Development Department. According to trade tax and Registration Department this will be upto a minimum of Rs. 250 crores in a year on which the promoter shall get benefit of about 30 crores in a year and in 10 years which will amount to Rs. 300 crores, and in case the promoter is not put to any restriction on expansion, they will not to dale 12 per cent, the objectivity price may increase capacity after 10 times which will induce to other promoters to give such exemption, and requested for clarification on certain issues, namely, whether the exemption will apply only to finished goods and whether the expansion of the capacity will be permitted. Many other querries were made with a proposal that in case the promoters of UPSCCL are to be exempted, it will require amendment on Trade Tax Act, forgiving such exemption to all the units to be privatized by the State Government and suggested that a minimum exemption should be fixed in rupees rather than period.

25. The Finance Department in their comments observed that the State Government has already taken a decision and communicated it to the BIFR and the Hon'ble Court that it cannot bear any further financial liability in the unit. BIFR found that the rehabilitation is not possible. Liquidator was appointed on the opinion from BIFR and thus it will not be proper to obtain an order from the High Court for taking back the property from official liquidator, and to offer it for privatization. It commented that unless a proposal of rehabilitation is concerned for all assets and the decision is taken at the highest level and the State Government takes approval of BIFR, the application cannot be filed before the High Court. The financial department made a significant comment on clause four of the note to be submitted to the cabinet to consider to remove liquidator and to offer the industry for privatization for seeking approval of the High Court. It did not agree with the proposal on the ground, firstly that in the Chief Minister's Conference. It was agreed that no such exemption is given to any industry. The financial department, however, agreed with a note of Industrial Development Commissioner to the extent that the proposal shall not have any effect on the liquidation proceedings which may continue. The liquidator is required to find out the purchasers of the assets of the company (in liq.) and that the State Government may take responsibility of finding out the purchaser only to the extent to put mineral assets of the State to their utilization, and for early payment of the dues of the workers which may take a long time without putting any liability or responsibility on the State Government.

26. U.P. Power Corporation submitted its note informing that there is a liability of 110.70 crores to be paid by the company (in liq.) to U.P. Power Corporation. If the unit is rehabilitated by privatization, it will put development of the capacity of cement production and since the rate schedule for this industry is higher than other category of consumer, it agreed in the interest of future realizations, with the proposal to exempt the electricity dues of 110.70 crores, while putting forward to the difficult, to the effect that the financial condition of the power corporation is unsatisfactory and thus it will not be possible to give such exemption, and offered the only option that the dues to be paid by the U.P. Power Corporation to the State Government be reduced to the extent of the dues of the UPSCCL. The Electricity Department, in fact tried to off set their liability to the State Government by reducing the amount of dues to be paid by UPSCCL. It was pointed out that under the U.P. Electricity Reforms Act there is no provision that exemption be given for any special project, and that any assurance to the promoters may be offered for exemption to be provided on electricity duty on the captive generation by the promoters for a maximum period of five years.

27. The Court finds that all the departments consulted, discouraged reliefs and concessions. Clause 4(iv) of the proposal put by the Principal Secretary and Industrial Development Commissioner, provided that the liquidator be removed and the industrial capacity be offered for privatization after obtaining the sanction from the High Court. One of the factors taking into consideration was to effect that it may take more than 20 years for the sale of the assets by the Liquidator causing continuing losses to the assets of the corporation as well as dues of the workmen.

28. A perusal of the aforesaid note which was made part of the record, and it was stated to be accepted by the cabinet, shows that the Principal Secretary and Industrial Development Commissioner proposed the following reliefs to be given by the State Government.

(i) Trade Tax

Rs. 67.10 crores

(ii) Limestone Royalty

Rs. 20.10 crores

(iiii) Electricity dues to UP Electricity Corporation

Rs. 110.70 crores

(iv) Working capital given by the State Govt. to the Corporation as debt.

Rs. 65.80 crores

Rs. 363.70 crores

It proposes that new promoters take guarantee for the following:

(i)

Arrears of wages, provident fund, gratuity and retrenchment benefit (two weeks pay with every year of service rendered)

Rs. 135 crores

(ii)

Payment of principal amounts of Financial Institutions by OTS

Rs. 60 crores

Rs. 195 crores

It was further proposed that 254 acres of land, building and factory at Churk and 564 acres of land at Gurma will not form part of the assets for sale as limestones is not available at these places and that its ownership will remain with the State Government. It was found these assets is about Rs. 30 crores which can be used for Government purposes and that its decision shall be taken by the State Government separately.

29. The substance of the proposal was to remove official liquidator and to offer the assets of the company (in liq.) to a promoter by privatization after offering the reliefs and concessions to the extent of 663.70 crores, by guarantee offer of only 195 crores and by excluding 254 acres land building and factory at Churk and 564 acres at Gurma valued at about 30 crores. Further reliefs and concessions offered were ten years exemption from trade tax, supply of electricity for 3 years on fix electricity tariff exemption on electricity duty on captive power generation and peaceful possession of unit to the new promoters.

30. Section 466 of the Companies Act, which is quoted as below :

"Section 466. Power of Court to Stay winding up.--(1) The Court 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 Court 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 Court thinks fit.

(2) On any application under this section, the Court may, before making an order, require the Official Liquidator to furnish to the Court a report with respect to any facts or matters which are in his opinion relevant to the application.

(3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwise as may be prescribed to the Registrar who shall make a minute of the order in his books relating to the company."

31. The Principal Secretary and Legal Remembrancer UP had advised to adopt procedure under Section 446 of the Act. Instead of applying under Section 466 of the Companies Act for standing liquidation to consider the proposed rehabilitation of the unit the State Government has made an application to this Court, after inviting the offers for consideration of the sale of the unit to the only offered Grasim Industries Ltd.

32. The State Government, therefore, against all opposition from all its department accepted recommendation of the Principal Secretary and Industrial Development Commissioner to invite offers for sale of the unit as a going concern. During the course of arguments it was repeatedly put to the Advocate General who appeared on second and third January, 2002, to support the application whether the State Government is making its submissions in support of the prayer under Section 466 or it is making an application to assist the official liquidator in sale of the assets. After seeking instructions, Sri R.P. Goel, Advocate General, made a categorical statement that he does not propose to press Section 466 in support of his application and that it should be treated an application to assist the official liquidator in disposal of assets under Section 457 of the Companies Act, 1956.

Before the Court considered the merits of the application (A-30) filed by the State Government in the aforesaid background, it is necessary to consider the objection of the Allahabad Bank.

33. Allahabad Bank is a secured creditor and that all the assets of the Corporation, have been mortgaged and hypothecated with Allahabad Bank on 22-6-2001. It filed a claim petition against the company (in liq.) and its guarantor on 22-4-1999 for recovery of Rs. 87,15,71,259.72 calculated on date before the Debt Recovery Tribunal, Jabalpur as Original Application No. 149 of 1999 which has been transferred to the Debt Recovery Tribunal at Allahabad and has been registered as Transfer Application No. 1464 of 2000 between Allahabad Bank v.U.P. State Cement Corporation. An injunction application filed by the Allahabad Bank on 26-2-2000 is still pending. It has objected to the application filed by the State Government and has prayed that the application may be dismissed with cost. The State Bank of India has filed application (A-44) dated 12-7-2001 with the same prayer to dismiss application filed by the State Government of sale of assets of the company (in liq.) to Grasim Industries Ltd. on the ground that the applicant being a secured creditor has first charged over all the assets of the company (in liq.) and that the sale proceeds receive therefrom are liable to be adjusted towards the dues of the State Bank of India. It is submitted in the application that the State Bank of India along with the Industrial Development Bank of India, Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India Ltd., Life Insurance Corporation of India Ltd. and Allahabad Bank granted a term of Rs. 4700 lacs in a consortium of the company (in liq.). Share of each member of the consortium has been detailed as below:

(i) IDBI

Rs. 230 lacs

(ii) IFCI

Rs. 300 lacs

(iii) ICICI

Rs. 400 lacs

(iv) LIC

Rs. 700 lacs

(v) State Bank of India

Rs. 500 lacs

(vi) Allahabad Bank

Rs. 500 lacs

Total

Rs. 4700 lacs

34, A joint mortgage was created as security towards the aforesaid term loan in respect of the fixed assets of the company (in liq.) in favour of the aforesaid financial institutions and bank on pan passu basis and joint security documents were executed between the borrowers and the creditors. First charge was created over all the hypothecated movable asserts present and future including uncalled capital of the company (in liq.) in favour of State Bank of India by executing the agreement dated 31-3-1981. A general power of attorney in favour of the State Bank authorizing to transfer the assets of the company (in liq.) in addition to above term loan facility, to grant working capital loan the State Bank along with Allahabad Bank formed a consortium for the said purpose on execution of an inter se agreement dated 18-3-1991 executed between the said two banks which were supplemented by an additional agreement dated 1-12-1992. Following credit facilities were granted towards the working capital against hypothecation namely, stocks of raw material, stocks in process, semi-finished and finished goods, stores and spares bills receivable and book debts and all other movables both present and future :

(i)

Cash credit hypothecation Ltd.

Rs. 250

(ii)

Letter of credit

Rs. 195 lacs

(iii)

Bank guarantee limit

Rs. 55 lacs

Total

Rs. 500 lacs

A working capital consortium agreement dated 18-3-1991, Joint Deed of hypothecation dated 18-3-1991 creating the first charge on all the movable assets of the company as specified in the schedule, was executed. The charge over the fixed and current assets of the company was registered in the office of the company in respect of term loan facility and working capital facilities separately. The application has enclosed the aforesaid documents. The agreement dated 31-3-1981 power of attorney agreement between the Banks dated 18-3-1991 and supplementary agreement dated 1-12-1992 working capital consortium agreement dated 18-3-1991, a joint deed hypothecation certificate dated 18-3-1991 and the charge certificate issued by the registrar of the company. The title deeds of the company were deposited with the Industrial Development Bank of India which was the lead Bank by way of equitable mortgage. A declaration and undertakingdated 8-5-1994 has also been given by the company regarding joint mortgage. The Government of U.P. guaranteed the above loan by its letter dated 22-10-1980 and 23-12-1991 and also executed guaranteed agreement dated 23-12-1991. To secure credit facilities towards the working capital a second charge over all the immovable properties mortgaged in favour of the State Bank of India and other members of consortium under term loan was also created. After the company (in liq.) was unable to pay its dues and BIFR recommended for winding up of the company and the company was recommended for winding up the State Bank of India filed an application for Rs. 62,68,50,394.53 with pendente lite and future interest at the rate of 17.75 per cent p.a. with quarterly rests before the Debt Recovery Tribunal at Jabalpur which was registered as O.A. No. 249 of 1999 and was transferred and is pending before the Debt Recovery Tribunal at Allahabad. It is alleged that the total dues of State Bank of India as on 30-6-2001 comes to Rs. 69.48 crores approximately. The State Bank of India has stated that before inviting the offers for sale the State Bank did not consult with the Bank. Both Allahabad Bank and State Bank of India have submitted that the provisions of Recovery of Debts Due to the Banks and Financial Institutions Act, 1993, override the provisions of the Companies Act, 1956. Sections 17 and 25 of the Act confer exclusive jurisdiction in respect to claim and execution of the Final order of the Tribunal and of the Recovery Officer in respect of the debts payable to the Bank and that the Company Court cannot interfere in respect of the debts due to the bank pending before Debt Recovery Tribunal, Allahabad. It is further submitted that the State Government is not entitled to sell the assets of the company to any purchaser or sale proceeds be deposited in the account of the State Bank towards the liquidation of its dues, failing which the bank will suffer irreparable loss and injury. In the statement of affairs under Section 454 of the Companies Act, the Directors of the Company (in liq.) have admitted liability of Rs. 258.75 crores to financial institutions and bank and Rs. 106.64 crores towards the dues of employees whereas the total assets of the company (in liq.) have been stated to be worth Rs. 330.42 crores.

35. Sri Ashok Mehta, Chief Standing Counsel appearing for the State Government submits that in the present case winding up proceedings are being taken under Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 read with Companies Act, 1956. The virus of the Sick Industrial Companies (Special Provisions) Act, 1985 has been upheld by Madras High Court as well as Supreme Court in J.M. Malhotra v. Union Bank of India [1997] 89 Comp. Cas. 600 (Mad.) and V.R. Ramaraju v. Union of India [1997] 89 Comp. Cas. 609 (SC). Section 34(2) of the Recovery of Dues to the Banks and Financial Institutions Act, 1993 provides that the provisions of the Act shall be in addition to and not in derogation of the Sick Industrial Companies (Special Provisions) Act, 1985 in the case of Allahabad Bank v. Canara Bank AIR 2000 SC, 1535, the Court has taken into consideration the contention that Section 34(1) give over-riding effect to the provisions of the Act as provided in Section 34(2) amended by Ordinance No. 1/2000, proceedings saves only six statutes from the purview of Section 34(1), The Companies Act, 1956 is not one of them. It is submitted that the judgment in Allahabad Bank's case (supra) is not applicable in the proceedings arising out of Sick Industrial Companies (Special Provisions) Act, 1985. And that since the present proceedings of winding up are under Section 20(2) of the Act of 1985 read with Companies Act, 1956, the ratio of the judgment is not applicable. In the alternative it is submitted that the Act of 1993 gives jurisdiction to decide for recovery of their debts and that the Tribunal cannot pass any w