M/S WRITERS AND PUBLISHER PVT. LTD. versus A. K. MISHRA, OFFICIAL LIQUIDATOR THE COOPERATIVE STORES LTD. SUPER BAZAR on 17 May 2018

[2018] 5 S.C.R. 775

M/S WRITERS AND PUBLISHER PVT. LTD.

v.

A K MISHRA, OFFICIAL LIQUIDATORTHE COOPERATIVE STORES LTD. SUPER BAZAR

(Contempt Petition (C) Nos.1665-1666 of 2017 )

IN

(I.A. Nos. 102-103 of 2017)

IN

(Special Leave Petition (C) Nos. 8398-8399 of 2005)

MAY 17, 2018

[DIPAK MISRA, CJI, A.M. KHANWILKAR AND

DR. D.Y. CHANDRACHUD, JJ.]

Multi-State Cooperative Societies Act, 2000 – Process ofrevival of Super Bazar, monitored by Supreme Court – Offer madeby petitioner-WPL accepted – Official Liquidator (OL) directed totake steps to revive Super Bazar – WPL infused funds for revival ofSuper Bazar inter alia through subscriptions towards share capital– However, the process of revival could not take place – WPL wasdirected to be refunded “entire investment” made by it during theperiod when the arrangement subsisted, with interest @ 6% p.a.–In terms of the direction, Comptroller and Auditor General of India(CAG) submitted its report – WPL filed objections thereto – Alsoinstituted contempt proceedings against OL – Held: In terms of thedirection, WPL is entitled to interest at 6% on the entire investmentmade by it – Investment brought in by way of share capital, did fallwithin the above mandate – It is part of the overall investment byWPL – Once WPL was allowed a return on its investment, the profitswhich it earned were required to be deducted – This part of thedirection does not contemplate that losses which accrued over theperiod were to be adjusted – Further, loss accrued not as a result ofthe business as such but due to payments which were required to bemade to the workmen in pursuance of the directions issued bySupreme Court – Report submitted by CAG needs to be correctedon the said counts – OL has set out the steps taken in pursuance of

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Athe order of Supreme Court for valuation and sale of the propertiesof Super Bazar – Petition for contempt as against the OL, notentertained.

The process of revival of Super Bazar was being monitoredby Supreme Court. Offer made by the petitioner-WPL wasBaccepted. The Official Liquidator (OL) was directed to take stepsto revive Super Bazar. The bid submitted by WPL stipulated thatthe infusion of funds for revival of Super Bazar was inter aliathrough subscriptions towards share capital. The process ofrevival could not take place and it was directed that WPL beCrefunded “entire investment” made by it during the period whenthe arrangement subsisted, with interest at 6% p.a. In terms ofthe direction to effectuate the refund, Comptroller and AuditorGeneral of India (CAG) verified the income and expenditureincurred by WPL, the profits earned from the Super Bazarestablishment. CAG submitted its report to which WPL filedDobjections. Contempt petition also filed by WPL against OL.

Disposing of the contempt petitions, the Court HELD: 1.1 WPL in terms of the direction in order dated29 March 2016 is entitled to interest at 6 per cent on the entireEinvestment made by it. Investment brought in by way of sharecapital, did fall within the said mandate. It is part of the overallinvestment by WPL. The order of Supreme Court envisaged anexit for WPL. The order directed that there be a deduction ofprofits made, since WPL was being compensated by way of intereston its investment. Consequently, it would be impermissible toFdeny WPL the benefit of interest on its entire investment inclusiveof share capital. [Para 12] [782-G-H]

1.2 The adjustment of losses incurred in Super Bazar andtheir deduction from the amount to be refunded to WPL is contraryto the mandate of the order dated 29 March 2016. CAG was onlyGrequired to deduct the profits which had accrued in favour of WPLwhile determining the amount refundable to it. Once WPL wasallowed a return on its investment, the profits which it earnedwere required to be deducted. This part of the direction does notcontemplate that losses which accrued over the period were toH

be adjusted. The loss accrued not as a result of the business assuch but due to payments which were required to be made to theworkmen in pursuance of the directions issued by this Court.The report submitted by CAG needs to be corrected on the saidcounts, namely;

(i) Denial of interest at 6 per cent on the entire investmentof WPL including by way of share capital; and

(ii) Adjustment of losses; as explained earlier. [Paras 13,14] [783-A, C, D-E]

1.3 The OL has also set out the steps which have beentaken in pursuance of the order of Supreme Court for valuationand sale of the properties of Super Bazar. Having regard to thecontents of the said affidavit, the petition for Contempt as againstthe OL is not being entertained. [Para 15] [783-G-H]

CIVIL APPELLATE JURISDICTION : Contempt Petition (C)Nos. 1665-1666 of 2017 in I.A. Nos. 102-103 of 2017 in Special LeavePetition (Civil) Nos. 8398-8399 of 2005.

From the Judgment and Order dated 07.05.2008 of the Hon’bleCourt in Special Leave Petition (C) Nos. 8398-8399 of 2005

WITH

M.A. Nos. 1394-1395 of 2017 in I.A. Nos.102-103 of 2017 inS.L.P. (C) Nos.8398-8399 of 2005, M.A. Nos. 677-678 of 2018 in S.L.P. Nos. 8398-8399 of 2005 & I.A. No.3664 of 2018

WITH

Contempt Petition (Civil) Nos.866-867 of 2018 in S.L.P. (C)Nos. 8398-8399 of 2005

WITH

M.A. Nos....D. Nos.64493, 64494 and 16545 of 2018.

C. A. Sundaram, Sunil Gupta, Sr. Advs., Hemant Singh, BijuMattam, Shourya Malhotra, Ankur Mody, Ms. Siddhi Padia, SantoshSharma (for Praveen Swarup), R. P. Shukla, Ms. Upasna Shukla, VijayK. Jain, S. Wasim A. Qadri, Jubair Ahmad Khan, Zaid Ali, Tamim Qadri,Saeed Qadri, Syed Faizan Ali (for Lakshmi Raman Singh), Ms. SunitaSharma, Ms. Rekha Pandey, Raj Bahadur, Ms. Swati Ghildiyal(for Mrs. Anil Katiyar), R. K. Kapoor, Ms. Rekha Giri, Ms. KheyaliSarkar, Reyat Kapoor, Ms. Reetu Sharma for Anis Ahmed Khan,M/s. Parekh & Co., Advs. appearing for the parties.

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AThe Order of the Court was passed by

DR. D. Y. CHANDRACHUD, J. 1. The revival of Super Bazarwas being monitored by this Court over several years. By an order dated7 May 2008, this Court noted that three bidders were identified by theEvaluation Committee; among them being M/s Writers and PublisherBPvt Ltd (WPL). This Court recorded that all the Unions representingthe workmen had agreed that the dues of the workers as on 31 December2007 were Rs. 54.31 crores.

2. By an order dated 26 February 2009, this Court accepted thereport of the Evaluation Committee which had recommended acceptanceof the offer made by WPL. Accordingly, the Official Liquidator (OL)Cand the Central Registrar, Multi State Cooperative Societies were directedto take steps to revive Super Bazar. In a further order dated 13 August2010, this Court observed thus :

“(ii) In terms of our order dated 7th May, 2008, an amount ofRs.54.31 crores, being arrears of wages upto 31st December,D2007, was directed to be disbursed by the highest bidder. Rs.55crores stands deposited by the highest bidder. The sum of Rs.20crores out of Rs.55 crores which lies with the Registry of theSupreme Court, will be disbursed by the Official Liquidator andthe nominee of the Central Registrar Co-operative Societies inthe presence of one Union representative of each Union withinEfour weeks from today. The representative of the highest bidderwill also remain present in the said meeting. It is made clear thatthe workers will sign the receipt of payment, which will be adjustedtowards the arrears of Rs.54.31 crores.

(iii) As far as the balance amount is concerned, we are directingFthe highest bidder to file an affidavit containing an Undertakingthat within a period of eight weeks, from the date of constitutionof the Board of Directors after the elections, the balance amountwill be disbursed to the workers. This will cover arrears of wagesup to 31st December, 2007.”

G3. Subsequently, in September 2015, an IA was filed on behalf ofthe Union of India stating that neither WPL nor the management ofSuper Bazar had submitted a revival plan before the Central Registrarof Cooperative Societies. As a result, the Super Bazar could not berevived in accordance with the provisions of the Multi-State CooperativeSocieties Act 2000.H

4. Faced with this situation, on 29 March 2016, a two Judge Benchof this Court observed that despite earnest efforts made by the Courtsince the acceptance of the bid of WPL, it was not possible to giveeffect to the terms of revival. It appears from the order of this Courtthat the Union of India was associated in the preparation of the modalitiesby which WPL could be released from the arrangement. Accordingly,this Court observed as follows :

“Despite earnest efforts made by this Court ever since theacceptance of the bid of M/s Writers and Publishers Ltd., anddespite a series of hearings in the matter ever since 2009, it cameto be realised, that it would not be possible to give effect to theterms of revival. It is in the above view of the matter, that thisCourt sought suggestions from the rival parties, how thearrangement could be terminated. It is in the above background, 4that the following motion bench order came to be passed on23.02.2016:

“The bidder has suggested two alternative courses of action ina written note handed over to us in Court today. The abovenote is taken on record and marked as Annexure-A. Mr. P.S.Narsimha, learned Additional Solicitor General representing theUnion of India seeks a short adjournment so as to enable himto obtain instructions in the matter. All other parties maylikewise obtain instructions in the matter before the next dateof hearing. Post for hearing on 01.03.2016.”

On the issue, as to how and under what terms and conditionsM/s Writers and Publishers Ltd., could be released from thearrangement, the parties (consequent upon mutual negotiations),submitted a joint statement of the Government of India and thebidder – M/s Writers and Publishers Ltd., dated 03.03.2016. Itseems that on re-consideration, there was a change of heart, atthe hands of Government of India, which then submitted a revisedjoint statement dated 05.03.2016. Learned counsel for the rivalparties have assisted this Court, on the manner in which M/sWriters and Publishers Ltd., should be released from the obligationof the instant arrangement. Having heard learned counsel, weare satisfied in recording, that M/s Writers and Publishers Ltd.should be refunded the entire investment made by them, alongwith interest at the rate of 6% per annum (though it was suggested,that the rate of interest could be at 9% per annum), subject to AB

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[2018] 5 S.C.R.

Adeduction of profits made during the period when the arrangementsubsisted.”

5. The above order of this Court dated 29 March 2016 envisagesthat WPL would be refunded its “entire investment” together with interestat 6 per cent per annum. However, the amount invested was to be subjectBto a deduction of the profits made by WPL during the period when thearrangement subsisted. Since WPL was to be refunded the entireinvestment made by it with interest, it was evident that the profits realisedby it during the subsistence of the arrangement would have to be deducted.

6. In order to give effect to the above directions, the order of thisCCourt envisaged a process of verification by Controller and AuditorGeneral of India (CAG). The CAG was directed to nominate an auditorto verify the income and expenditure incurred by WPL and the profitsearned from the Super Bazar establishment. The determination by theauditor was required to be verified by CAG, upon which it would bebinding upon by the parties concerned. WPL was directed to handoverDall the movable and immovable properties of Super Bazar to the OL.7. The role which was ascribed to CAG emerges from thefollowing extract, from the order of this Court dated 29 March 2016 :

“In order to effectuate the refund referred to hereinabove 5 (toM/s Writers and Publishers Ltd.), we consider it just and appropriateEto direct the Comptroller and Auditor General of India, to nominatean Auditor, to verify the income and expenditure incurred by M/sWriters and Publishers Ltd., and also, the profits earned by it fromthe Super Bazar establishment, during the period underconsideration. The determination so made by the Auditor, will beFverified by the office of the Comptroller and Auditor General ofIndia, whereupon, the same shall be binding on all the partiesincluding M/s Writers and Publishers Ltd. Needless to mention,that all interested parties shall have the liberty to appear beforethe nominated Auditor, and canvass their respective claims.”

G8. WPL was held to be entitled to the withdrawal of an amount ofRs. 14.84 crores deposited by it in the Registry of this Court and to afurther sum of Rs. 8.07 crores which was deposited with the RegionalCommissioner, Employees’ Provident Fund Organization (EPFO), Delhitogether with interest. The above amounts were to be deducted fromthe principal amount payable to WPL, while refunding the paymentsHdue.

9. In pursuance of the directions issued in the order of this Court,CAG submitted its report dated 1 September 2017. WPL has filed itsobjections to the report.

10. Certain aspects of the CAG report form the subject matter ofsome dispute. They are:

(i) Interest at the rate of 6 per cent per annum on the share capitalinfused by WPL has been disallowed.WPL contends that this isexpressly contrary to the order dated 29 March 2016 by which itsentire investment was to be returned together with interest at 6per cent. According to WPL, the entire investment would includethe amount invested towards share capital. According to WPL,subscription towards share capital was only a methodology bywhich the bid amount was to be brought in and utilized to dischargevarious dues in satisfaction of the orders of this Court. On theother hand. The affidavit filed by CAG contains a defence of itsview that interest should not be allowed on share capital. CAGhas stated thus :

“The investment by M/s WPL was primarily in the nature ofShare Capital, wherein share holders bear the profits and lossesof a business. Share Holders do not get interest on theirinvestment made in the form of share capital. Further, if sucha practice is to be followed then it should be made applicablefor other shareholders of Super Bazar too.”

(ii) The CAG report provides that the amount payable to WPLshould be determined after adjustment of losses incurred by SuperBazar. WPL asserts that this would be expressly contrary to theorder of this Court dated 29 March 2016 under which CAG wasnot required to adjust losses but to only deduct the profits whichaccrued in favour of WPL, while determining the amountrefundable. There was, according to WPL, no direction for theadjustment of losses. Moreover, CAG, in the view of WPL, hasfailed to notice that the so called losses in Super Bazar were notdue to business but due to : (i) an amount of Rs. 54.31 croresbeing paid to the workers as their past dues in compliance of theorders dated 7 May 2008 and 13 August 2010 of this Court; (ii)an amount of Rs. 31 crores being paid to the workmen towardsthree years’ salaries; and (iii) an amount of Rs. 15 crores paidtowards arrears of property taxes, education cess and dues whichhad accrued even before possession was taken over by WPL; A

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A11. While dealing with these objections, we must in fairness, advertto the fact that in the order dated 29 March 2016, CAG was required tonominate an auditor to verify the income and expenditure incurred byWPL as well as the profits earned by it from the Super Bazar establishmentduring the period under consideration. This determination of the auditorwas to be verified by the office of the CAG upon which it would beBbinding on all parties including WPL. In other words, the actual exerciserequired to be carried out by the auditor was to verify the income,expenditure and the profits earned by WPL and it was this determinationwhich would, subject to verification by the CAG, be final and binding.CAG has, however, proceeded on the basis that WPL is not entitled toCinterest at 6 per cent per annum on share capital on the ground that ashareholder who participates in the profits and losses of a business is notentitled to interest on share capital.

12. Now the order dated 29 March 2016 indicates that :

“…in the bid which was submitted by M/s Writers and PublishersDLtd, the infusion of funds stipulated, was to the tune of Rs.504 crores.The break up thereof, for the revival of Super Bazar, was roughly asunder:

Share Capital - Rs.102 crore

Working Capital - Rs 276 croreERevival and Revamping - Rs 126 crore”

All the above elements including share capital and working capitalwere part of the infusion of funds contemplated for the revival of SuperBazar. Eventually, when the process of revival could not take place, thisCourt formulated directions for the exit of WPL. After due deliberationFby all the parties, including the Union government, this Court observedthat WPL “should be refunded the entire investment made by them alongwith interest at the rate of 6 per cent per annum.. subject to deduction ofprofits made during the period when the arrangement subsisted”. WPLin terms of the aforesaid direction is entitled to interest at 6 per cent onthe entire investment made by it. Investment brought in by way of shareGcapital, did fall within the above mandate. It is part of the overallinvestment by WPL. The order of this Court envisages an exit for WPL.The order directs that there be a deduction of profits made, since WPLwas being compensated by way of interest on its investment.Consequently, it would be impermissible to deny WPL the benefit ofHinterest on its entire investment inclusive of share capital.

13. We are also of the view that the adjustment of losses incurredin Super Bazar and their deduction from the amount to be refunded toWPL is contrary to the mandate of the order dated 29 March 2016.CAG was only required to deduct the profits which had accrued in favourof WPL while determining the amount refundable to it. In its affidavit,CAG has proceeded on the general consideration that the term ‘profit’represents a revenue earned from business activity exceeding theexpenses/costs and that a loss is “vice versa”. What this ignores howeverare the specific terms of the directions issued by this Court whichenvisage that it was the profits earned by WPL from the Super Bazarestablishment which were to be deducted. Once WPL was allowed areturn on its investment, the profits which it earned were required to bededucted. This part of the direction does not contemplate that losseswhich accrued over the period were to be adjusted. We have also notedthe submission of WPL that the loss accrued not as a result of the businessas such but due to payments which were required to be made to theworkmen in pursuance of the directions issued by this Court.

14. We are accordingly of the view that the report submitted byCAG needs to be corrected on the above counts namely;

(i) Denial of interest at 6 per cent on the entire investment ofWPL including by way of share capital; and

(ii) Adjustment of losses;

as explained earlier.

15. WPL has instituted Contempt proceedings against the OL. Inthe reply filed by the OL, it has been stated that the determination of theincome and expenditure of WPL and the profits earned form the SuperBazar establishment was to be carried out by the auditor nominated byCAG which was to be thereafter verified by CAG. The OL has submittedthat in these circumstances, it would be inappropriate to contend that hehas violated any part of the directions of this Court. In pursuance of theorder of this Court, the Director General of Audit nominated M/s SPMGfor conducting an audit of the accounts of Super Bazar. Time for thecompletion of the audit was extended by this Court on 21 November2016 and 27 April 2017. The OL has also set out the steps which havebeen taken in pursuance of the order of this Court for valuation and saleof the properties of Super Bazar. Having regard to the contents of thesaid affidavit, we are not inclined to entertain the Petition for Contemptas against the OL.

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[2018] 5 S.C.R.

A16. However, we direct that all concerned shall now act inpursuance of the observations contained in this order and theinterpretation placed on the earlier directions dated 29 March 2016.

17. The Contempt Petition(Civil) Nos 1665-1666 of 2017 in I.A.Nos. 102-103 of 2017 in Special Leave Petition (Civil) 8398-8399 of B2005 are accordingly disposed of.

Divya Pandey

Contempt Petitions disposed of.

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