M/S WRITERS AND PUBLISHERS PVT. LTD. versus DR. AK MISHRA, OFFICIAL LIQUIDATOR on 5 March 2020

SUPREME COURT REPORTS

[2020] 4 S.C.R.

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M/S WRITERS AND PUBLISHERS PVT. LTD.

v.

DR. AK MISHRA, OFFICIAL LIQUIDATOR

(Conmt. Pet. (C) Nos. 1665-1666 of 2017)

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MARCH 05, 2020

[DR. DHANANJAYA Y. CHANDRACHUDAND AJAY RASTOGI, JJ.]

Multi-State Co-operative Societies Act, 2002:

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Css.89 and 90 – Winding up of Super Bazar – Notice by OfficialLiquidator u/s. 25F of Industrial Disputes Act, 1947 terminatingservices of regular employees – SLP before Supreme Courtchallenging winding up order – Scheme for revival of Super Bazaar– The petitioner in its bid for revival envisaged investment ofRs. 504 crores – Petitioner’s bid accepted – SLP disposed of inDabove terms keeping the order of winding up suspended – Duringperiod under petitioner’s management summons issued u/s. 7A ofEmployees’ Provident Fund and Miscellaneous Provisions Act, 1952– Application before Supreme Court seeking withdrawal of summons– Constitution of Committee to look into certain issues regardingEimplementation of revival scheme – Committee in its report indicatedserious impasse arising out of the non-implementation of the revivalplan – Court directed refund of entire investment made by thepetitioner subject to deduction of profits made during the period ofarrangement – Direction to Comptroller and Auditor General ofIndia to determine exact amount to be refunded – Official LiquidatorFwas 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 certainamount received from the sale of property of Super Bazar – The netoutstanding amount worked out by Comptroller and Auditor GeneralG(CAG), as against the claim of petitioner amounting to Rs. 126crores, was Rs. 3.39 crores – Held: The conduct of the petitionershows lack of bonafide in revival of Super Bazar – Having failedin reviving Super bazar, its claim for refund of entire amount it hadinvested, is contrary to the principles which govern winding up aswell a statutory scheme embodied in ss. 89 and 90 of Multi-StateH

Co-operative Societies Act; rr. 28 and 29 of Multi-State Co-operativeSocieties Rules and s. 11 of Employees Provident Fund Act –Verification made by CAG is final and binding – Official Liquidatorto deal with petitioner’s claim to the extent set out by CAG inaccordance with statutory order of priorities – Multi-State Co-operative 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 dated29.03.2016 in nominating an auditor was to ensure a properverification of the income and expenditure incurred by thepetitioner and the profits earned from the Super Bazarestablishment. Underlying the above direction of this Court wasthe necessity that the auditor conduct a due verification of theactual and genuine income as well as the expenditure which wasincurred by the petitioner. That was premised on the assumptionthat in pursuance of the revival plan, a genuine effort had beenmade by the petitioner to revive Super Bazar. The circumstanceswhich have come on the record as a result of the verificationwhich has been carried out by the CAG upon the report of theauditor indicate several significant facets. The findings which haveemerged in the course of the verification by the CAG leave nomanner of doubt that the petitioner did not intend at any materialtime to embark upon the revival of Super Bazar. The businessand affairs of Super Bazar were conducted in a manner that wassham and bogus. It dealt with related entities as explained in thereport. The Transactions and the modalities followed areindicative of a lack of bona fides on the part of the petitioner in itsoperations. [Paras 26 and 27][102-B-D; 103-C]

2. No part of the order dated 29.03.2016 of this Courtcontains a direction to the effect that the petitioner would not beheld to account, upon a verification by the CAG, for the nature ofits dealings during the period when it was in management. Toaccept the submission of the petitioner that no deduction couldbe made from the investment which it had brought in save andexcept for profits actually earned would be a simplistic reading ofthe order of this Court. The entire process of verification of the ABCD

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Aincome and expenditure was designed not only for the purposeof deducing the profits which was earned by the petitioner. TheCourt was also conscious of the fact that in devising the termsfor exit of the petitioner, it was not appraised at that stage of thenature and extent of the dealings of the petitioner in itsmanagement of Super Bazar. The order of this Court thereforeBcan only be read to mean that the petitioner would be held toaccount for the period when it was in management based on theresult of the verification initially by the auditor and thereupon bythe CAG. [Para 30][105-D-F]

3. The interpretation of the order dated 29 March 2016Cmust also be juxtaposed in light of the statutory provisions whichgovern an order of winding up under Section 89 and other cognateprovisions of the Multi-State Co-operative Societies Act 2002.The statute lays down the manner in which the liquidator has tofunction upon taking charge. The Multi-State Co-operativeDSocieties Rules 2002, in particular, indicate the procedure to beadopted by the liquidator and the manner in which the assets areto be applied. The order of priority is spelt out. A pro-rata refundof share capital appears third in the order of priority. The last inthe order of priorities is a pro-rata payment of dividend on sharecapital at a rate not exceeding 6.25 per cent for the period ofEliquidation. To allow the claim of the petitioner to be refunded itsentire investment amount, the major part of which took placethrough the subscription of share capital, would essentially placeit outside the purview of the winding up proceedings. Acceptingthe claim would enable it to take away moneys overriding the Forder of priorities laid down by the Multi-State Co-operativeSocieties Rules 2002. The petitioner was one of the three biddersinvited to bid for the opportunity to take over the managementof Super Bazar and revive its operations. The petitioner was underno legal obligation to submit a bid. It engaged in a free-standing market process, albeit one supervised by this Court, throughGwhich the petitioner sought to turnaround the business of SuperBazar and subsequently receive profits from the business. Thisis supported by the conduct of the petitioner in squeezing outexisting members and securing for itself 98.89 per cent of theshare capital of Super Bazar. Having failed in its market endeavourHto revive Super Bazar, it now seeks to exit its investment with a full refund and without having to account for the business whichwas carried on during the period when Super Bazar was underthe management of the petitioner. Such a course of action wouldbe contrary both to the first principles which govern winding upas well as the statutory scheme which is embodied in Sections 89and 90 of the Multi-State Co-operative Societies Act 2002 andRules 28 and 29 of the Multi-State Co-operative Societies Rules2002. [Para 31][105-G-H; 106-A-E]

4. Section 11 of Employees’ Provident Fund andMiscellaneous Provisions Act, 1952 (EPF Act) provides that wherean order of winding up is made, dues owed towards employees’provident fund (or any other liability mentioned therein) shall bepaid in priority to all other debts in the distribution of the propertyor the assets of the entity which is being wound up. [Para 33][107-A-B]

Maharashtra State Co-operative Bank v. AssistantProvident Fund Commissioner (2009) 10 SCC 123 :[2009] 15 SCR 1 – relied on.

5. The plea of the petitioner to receive payments at thepresent stage would confer on it a preference and priority whichwould be in the teeth of the statutory provisions contained in theMulti-State Co-operative Societies Act 2002 and the EPF Act.There is no substance in the challenge that has been preferredon behalf of the petitioner to the determination which has beenmade in the audit report following which a verification has beencarried out by the CAG. The claim of the petitioner to the extentset out in the verification report by the CAG will necessarily haveto be dealt with by the liquidator upon the realization of the assetsof Super Bazar in accordance with the statutory order of prioritiescontained in the Multi-State Co-operative Societies Rules 2002.The verification made by the CAG is final and binding and shallnot 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 bythe verification report by the CAG in terms of the priorities forthe payment of claims as envisaged in the Multi-StateCo-operative Societies Act 2002 and the associated rules. The AB

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Aliquidator is also directed to treat the amount outstanding to theEPFO in terms of the first priority which is created by theprovisions of Section 11(2) of the EPF Act. The liquidator shallalso consider the claim of the Union Government. The liquidatoris directed to consider the auditor and the CAG’s observationswith respect to the 14,149 new members inducted during WPL’sBmanagement not being genuine. The liquidator shall, in theprocess of winding up, be at liberty to consider all other claimsreceived and to make a determination in accordance with law. Inthe event any further judicial determinations are required to bemade, parties shall be at liberty to approach the High Court. [ParaC35][109-A-C]

Case Law Reference

(2009) 10 SCR 123

relied onPara 33

DINHERENT JURISDICTION: Contempt Petition (C) Nos. 1665-1666 of 2017 in I.A. NOS. 102-103 of 2017 in SLP(C) NOS.8398-8399/2005.

Petition filed for disobedience of the Order dated 27.04.2017 passedby this Hon’ble Court.E

WITH

MA Nos. 1394-1395/2017 in IA Nos. 102-103 of 2017 in SLP(C)No. 8398- 8399/2005F

MA Nos. 677-678/2018 in SLP(C) Nos. 8398-8399/2005CONMT.PET.(C) No. 866-867/2018 in SLP(C) Nos. 8398-8399/2005

MA Nos. 1862-1863/2018 in SLP(C) Nos. 8398-8399/2005

GMisc Appl Diary No. 25930/2019 in SLP(C) Nos. 8398-8399/2005.

Ms. Madhavi Divan, Vikramjit Banerjee, ASGS, C.A. Sundaram,N.K. Mody, Harin P. Raval, Sr. Advs., Ankur Mody, Ms. Fareha AhmadKhan, Sachin Gupta, Pranay Mohan Govil, Ms. Rohini Musa, Zafar H

Inayat, Abhishek Gupta, Praveen Swarup, R.K. Kapoor, Ms. ShwetaKapoor, Rajat Kapoor, Anis Ahmed Khan, S. Wasim Quadri, LakshmiRaman Singh, Nipun Saxena, Ms. Sukanya Singh, Kartikey Kanojiya,Ms. Upasna Shukla, Vijay K. Jain, Sumit Goel, Ms. Malvika Bhanot,Raghav Bansal, Paritosh Arora, M/s. Parekh & Co., Mohit Chaudhary,Ms. Puja Sharma, Kunal Sachdeva, Zulfikar Ali Chowdhary, BalabirSingh Suri, Imran Ali, Parveen Kumar, Ms. Garima Sharma, Ms. SristiGupta, Ashok K. Srivastava, R. Balasubramanian, Ms. Swati Ghildiyal,Ms. Aakanksha Kaul, Ms. Nidhi Khanna, Manek Singh, Mrs. Anil Katiyar,S. Wasim Qadri, Lakshmi Raman Singh, Nipun Saxena, Ms. SukanyaSingh, Kartikey Kanojiya, Zaid Ali Subzposh, Tamim Qadri, Saeed Qadri,Nachiketa Joshi, Ms. Rekha Pandey, Siddhartha Sinha, Anshul Gupta,Prashant Rawat, Om Prakash Shukla, Raj Bahadur Yadav, Siddharth,Amit Kumar Agrawal, Vijay K. Jain, Vishnu B. Saharya, Viresh B.Saharya, Advs. for the appearing parties.

The Judgment of the Court was delivered by DR DHANANJAYA Y CHANDRACHUD, J.

The Winding Up of Super Bazar

1. Super Bazar, which was envisaged to be a model ofco-operation in the consumer movement fell on bad days. On 15 March2002, an inquiry was conducted into the working and financial conditionsof Super Bazar under Section 78 of the Multi-State Co-operativeSocieties Act 2002. The inquiry identified poor management and a risein the wage bill of Super Bazar as the primary causes for the losses.

2. On 5 July 2002, the Central Registrar of Co-operative Societies[1]passed an order for the winding up of Super Bazar. The order of windingup was upheld by the Appellate Authority on 5 November 2002. Findingthat as a multi-state cooperative society, the institution had notsub-served the interest of the general public, the Appellate Authorityheld that the Central government was under no obligation to continueinfusing funds to keep Super Bazar afloat without the prospect of anyreturns. The total loss of Super Bazar as on 31 March 2002 was` 60.28 crore. The order of winding up was challenged before the HighCourt of Delhi in writ petitions instituted by the employees’ unions ofSuper Bazar.

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A3. On 15 January 2003, the Official Liquidator[2]issued a noticeunder Section 25F of the Industrial Disputes Act 1947[3]terminating theservices of the regular employees with effect from 15 February 2003 onthe ground that Super Bazar did not possess the necessary financialresources to meet its salary obligations. In a reply filed to one of thewrit petitions before the High Court, the Central government expressedBits inability to infuse funds for the rehabilitation of the enterprise. In areply filed on 3 March 2003, the OL stated that upon the winding up ofthe enterprise, the services of the employees had come to an end by theoperation of law. The writ petitions before the High Court were dismissedon 19 December 2003 as a consequence of which the order of liquidationCwas upheld. In a writ petition titled RS Mudgal v Official Liquidator[4],notices issued by the OL on 15 January 2003 and 30 April 2003 underSection 25F and Section 25N of the Industrial Disputes Act were assailed.The High Court of Delhi by its order dated 17 May 2004 dismissed thepetition, holding:

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D“Legal position, not disputed by any of the counsel appearing forthe parties that with the winding up of Super Bazar, by operationof law, Super Bazar closed down. Employer-employeerelationship between the employees of Super Bazar snapped, thewinding up order being deemed to be a notice of discharge of theofficers and employees of Super Bazar.”E

4. The judgment of the High Court of Delhi dated 19 December2003 dismissing the petitions challenging the order of winding up waschallenged before this Court in proceedings under Article 136 of theConstitution titled Super Bazar Karamchari Dalit Sangh v Unionof India[5]. Between August and December 2004, this Court grantedFopportunities to the workers to bring forth an entity with whose assistanceSuper Bazar could be revived.

Bids for Revival

5. On 4 February 2005, the Indian Labour Co-Operative SocietyGand the Indian Potash Limited made a proposal for taking over the assetsand liabilities of Super Bazar, and in pursuance of a direction of this 2 “OL”3 “Industrial Disputes Act”4 2004 (74) DRJ 694H5 SLP (C) Nos 8398-99 of 2005 and SLP (C) No 12145 of 2005

Court, an amount of ` 50 lakh was deposited. Subsequently, the amountcame to be refunded. By an order dated 28 February 2006, this Courtwas of the view that the entrustment of Super Bazar to a professionallymanaged entity was essential. Based on this view, an EvaluationCommittee[6]was constituted to prepare a comprehensive scheme forthe revival of Super Bazar. This Court by its order dated 12 February2008 noted that as a result of the co-operative society having becomedefunct, the livelihood of about 1,030 workers had been affected. Thecourt further noted that three bids had been received for the revival ofSuper Bazar from (i) Indian Potash Limited; (ii) Writers and PublishersLimited[7]; and (iii) National Consumer Cooperative Federation, togetherwith Pantaloons Retail India Limited. The court observed that, beforethe bids could be considered, it would be appropriate to examine thedemand of the workers with regard to wages, including dearnessallowance and any other allowances which were expected to be paid bythe future management for at least three years after taking over SuperBazar. The court expressed the hope that once the demand was workedout category-wise, it would facilitate the acceptance of bids as well asthe working of the committee which was to evaluate them. The Workers’Union filed an affidavit dated 14 March 2008 quantifying their demandsat ` 54.31 crore as on 31 December 2007, noting that the Centralgovernment had waived an amount of ` 114 crore. This Courtsubsequently required the EC to complete the process of evaluating thethree bids based on the net-worth of the bidders as on 31 March 2007and their net-profits as on 31 March 2005, 31 March 2006 and 31 March2007. In the course of its order dated 7 May 2008, this Court observed:

“…Under the recommendations dated 3rd August, 2007 made bythe Evaluation Committee, the successful bidder is required toget the by-laws of Super Bazar amended. That amendment canbe made only by the Official Liquidator. However, it appears thatas a result of the said amendment, the share capital of SuperBazar might have to be enhanced. Therefore, the highest biddershould undertake that in such eventuality, it will stand by theenhancement of the share capital and reconstitution of the newBoard of Super Bazar to be done in accordance with the provisionsof Multi-State Cooperative Societies Act, 2002.”

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AThe court issued directions for the evaluation of the three bids bythe EC. The court stated that its order was in exercise of the powerconferred by Article 142 of the Constitution of India, with the object ofensuring the revival of Super Bazar.

6. On 6 August 2008, WPL submitted a revised bid together withBa business plan in terms of the recommendations of the EC. The bidsubmitted by WPL envisaged an investment by it of ` 504 crore to bemade in the following manner:

10. Amount to be deposited by thebidder in Super BazarCa) Before withdrawal of liquidationRs. 102 Crores (Rupees Oneorder to make the net worth of theHundred and Two Crores)society positive (see conditions)towards issued andsubscribed paid up capital.Db) Towards working capital of SuperRs. 276 Crores (Rupees TwoBazar after the withdrawal ofHundred and Seventy-Sixliquidation order.Crores) or more, as and whenrequired.c) Amount to be invested for revivalRs. 126 Crores (Rupees OneE& revamping of the business ofHundred and Twenty-SixSuper Bazar Rs. 102 CroresCrores) or more as per the(Rupees One Hundred and Tworevival business plan and asCrores) towards issued andand when required.subscribed paid up capital.F

“The above extract indicates that WPL was to infuse an amountof ` 504 crore divided into:

(i) An amount of ` 102 crore towards issued and subscribedpaid up share capital (before withdrawal of the liquidationGorder to make the net-worth positive);

(ii) An amount of ` 276 crore towards working capital (as andwhen required after the withdrawal of the liquidation order);and

(iii) An amount of ` 126 crore for the revival and revamping ofHthe business of Super Bazar (as and when required).

7. On 26 February 2009, this Court accepted the recommendationof the EC dated 5 November 2008 by which it had recommended theacceptance of WPL’s bid. The three trade unions which were representedbefore this Court stated that they had no objection to the recommendationsof the EC. Hence, by the order of the court the OL and the CentralRegistrar were directed to take steps to revive SuperBazar in terms ofthe orders passed from time to time. The court ordered that, pendingthe revival of Super Bazar, the order of winding up was to remainsuspended. Moreover, as and when the scheme of revival came intoforce, it would substitute the order of winding up. The special leavepetitions were disposed of in the above terms.

Period under WPL Management

8. On 8 October 2009, Super Bazar, now under the managementof WPL, issued a notice for the re-employment of 1,030 workers witheffect from 5 October 2009. In Super Bazar Karamchari HiteshiSangthan v Ramesh Chander Agarwal[8], a contempt petition was filedseeking the disbursement of the sum of ` 54.31 crore to the employeesimmediately. A direction was also sought for the deposit of the employees’share of provident fund contributions by WPL. By an order dated 13August 2010, this Court directed that out of the amount of ` 55 crorewhich had been deposited by the highest bidder (WPL), an amount of` 20 crore be disbursed to employees by the OL and a nominee of theCentral Registrar, in the presence of a representative of each of theunions within four weeks. Insofar as the balance was concerned, theorder directed WPL to file an undertaking that within a period of eightweeks from the date of the constitution of a new Board of Directors, theremaining amount would be disbursed to the workers. The general bodywas to elect the new Board of Directors within ninety days. This Courtalso directed that the premises of Super Bazar, which had beenvalued at ` 117.52 crore, shall not be encumbered and no third-partyrights should be created till further orders.

9. By a subsequent order dated 14 March 2011, this Court directedWPL to deposit an amount of ` 14.84 crore with the Registry of thisCourt, clarifying that this was a part of the total amount of ` 54.31 croreowed to employees of Super Bazar. WPL was ordered to comply withsuch directions as may be issued from time to time by the Central 8 Contempt Petitions Nos (C) 353-355 of 2009 in SLP (C) Nos 8398-8399 of 2005 andSLP (C) No 12145 of 2005

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ARegistrar, including with regard to the inspection of Super Bazar’saccounts.

10. WPL claims that in compliance of the orders passed by thisCourt, it effected the following payments:

• Amount paid to workers: Rs. 30.16 croresB

• Amount deposited in Supreme Court Registry: Rs. 14.84crores

• Amount paid towards PF: Rs. 8.07

• Deductions towards shortage: Rs. 0.57 croresC

• Unclaimed amount: Rs. 0.68

According to WPL, further demands were raised by the workmenfrom WPL under the recommendations of the Fifth Pay Commission.WPL filed IAs[9] seeking a clarification that its liability had been peggedat ` 54.31 crore. On 5 October 2012, a notice was issued to the workmen,Dstating that the obligation to engage them for three years had beencomplied with and directing them to cease from reporting to work.

11. On 22 March 2013, the Employees’ Provident FundOrganization[10] issued a summons to Super Bazar under Section 7A ofthe Employees’ Provident Funds and Miscellaneous Provisions Act 1952[11].EWPL disputed this by instituting IAs[12] seeking a direction to the EPFOto withdraw the summons.

12. On 16 October 2014, this Court constituted a committee, beingof the opinion that certain issues in regard to the implementation of therevival scheme were required to be addressed. The committee was toFcomprise of:

(i) Shri L Nageswara Rao, Additional Solicitor General of India(as he then was);

(ii) Mr P Sampath, Director, Department of Agriculture &GCo-operation, Ministry of Agriculture, Government of India; 9 IA Nos 28-30 of 201110 “EPFO”

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(iii) Mr Kesav Dasiraju, Secretary to Government of India,Department of Consumer Affairs; A

(iv) Mr Harin P Raval, Senior Advocate (representing the OL);

(v) Mr CA Sundaram, Senior Advocate (representing WPL).

The committee submitted its report on 22 June 2015. Thecommittee noted that out of the proposed infusion of ` 504 crore underthe revival plan, WPL had brought in an amount of ` 102 crore towardsshare capital but the status of the infusion under the other two heads(working capital and revival funds) was unknown. As regards thedisbursement of ` 54.31 crore to the workers, the report of thecommittee reflected the following position:

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•Amount disbursed by Official Liquidator: Rs. 19.79 crores

• Amount paid by M/s Writers and Publishers Ltd : Rs. 7.93Crores •Amount deposited by M/s Writers and Publishers Ltd. inDProvident Fund Office: Rs. 8.07 Crores.

On the time frame for the implementation of the revivalscheme, the committee recorded the submissions of WPL which wereas follows:

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“M/s Writers and Publishers Ltd has also stated that they areready to bring in further investment provided the liquidationproceedings are withdrawn and there is no deviation from theoriginal bid conditions. However, they have stated that bidder cannotprovide a definite time period for the investment keeping in viewthe series of unnecessary litigations/hurdles since last so manyyears. The requisite investments will be made by the bidder inthe society as per the business plan provided free hand is givento the bidder without any inference from OL and from the registrarin the day to day affairs.”

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Adverting to a difference of opinion between the OL and WPL inregard to the preservation of the properties of Super Bazar, the reportindicated that:

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“There is a cleavage of opinion between M/s Writers and PublishersLtd. and the Official Liquidator on this point. While the OfficialLiquidator demands that no property of Super Bazar should be 90SUPREME COURT REPORTS

Aallowed to be sold/disposed off or leased out to any third party infuture, in the interest of revival of Super Bazar, M/s Writers andPublishers Ltd. have stated clearly that in case of any suchrestrictions being placed on the sale of properties, the bidder shallseek an option to withdraw its bid along with interest and damages.

BIn addition, M/s Writers and Publishers Ltd. has also stated thatit should have total control of the society and its assets.In view ofthe above, the Committee is of the view that this issue wouldhave to be resolved by this Hon’ble Court.”

Besides the above aspect on which the committee observed thatCa decision of this Court was necessary, it also noted that another area ofa similar nature was the means required to ensure that the managementof the Super Bazar project functioned within the framework of the Multi-State Co-operative Societies Act 2002.

13. The report of the committee appointed by this Court indicatedDthat there was a serious impasse arising out of the non-implementationof the revival plan. In March 2016, the Union of India filed an affidavitstating that despite the lapse of seven years, Super Bazar had not beenrevived. The Central government drew attention to the fact that in theintervening years WPL had not submitted a revival plan before the CentralRegistrar of Co-operative Societies, despite reminders. It was allegedEthat instead of reviving Super Bazar, WPL had outsourced the shopsand properties of Super Bazar to third parties on a rental basis, earninghuge rental incomes in the process. The Central government submittedthat the infusion of funds by WPL was for the revival of Super Bazarand even if it were to withdraw from the revival process, there could beFno stipulation for a refund. The Central government submitted that ifWPL were to withdraw from the revival process, Super Bazar ought tobe placed under liquidation and all claims would be duly investigatedby the Central Registrar.

14. Eventually, by an order dated 29 March 2016, this Courtobserved that:G

“Admittedly, the infusion of funds by the bidder was for therevival of the Super Bazar, and there was no stipulation forrefund,in case of withdrawal of the bidder from the revival process…”

The court noted the submission that WPL had failed to submit aHrevival plan before the Central Registrar in spite of several directions, as a result of which Super Bazar had not been revived seven years afterWPL took over management of the concern. The court took note of thesubmission that under Section 90 of the Multi-State Co-operative SocietiesAct 2002, all claims would have to be investigated by the OL and to besettled in accordance with the statutory order of priorities for thesettlement of liabilities. The Central government, as a creditor of SuperBazar, had an outstanding loan amount of ` 68.51 crore. The court notedthat on the issue as to how and under what terms WPL could be releasedfrom the arrangement, a joint statement of the Central government andWPL dated 3 March 2016 had been submitted. Yet, upon reconsideration,“there was a change of heart” on the part of the Central governmentwhich then submitted a revised statement dated 5 March 2016. On 29March 2016 the following directions were then issued by this Court:

“Learned counsel for the rival parties have assisted this Court,on the manner in which M/s Writers and Publishers Ltd., shouldbe released from the obligation of the instant arrangement. Havingheard learned counsel, we are satisfied in recording, that M/sWriters and Publishers Ltd. should be refunded the entireinvestment made by them, along with interest at the rate of 6%per annum (though it was suggested, that the rate of interest couldbe at 9% per annum), subject to deduction of profits made duringthe period when the arrangement subsisted.”

The above directions envisaged that WPL should be refunded theentire investment made by them together with interest at 6 per cent perannum, subject to the deduction of profits made during the period thatthe arrangement subsisted. In order to determine the exact amount to berefunded, the Court directed the Comptroller and Auditor General ofIndia[13] to nominate an auditor who would verify the income andexpenditure incurred by WPL as well as the profits earned from theSuper Bazar establishment during the period under consideration.The CAG was to verify the determination made by the auditor andthe result would be binding on all the parties including WPL. This part ofthe Court’s direction reads as follows:

“In order to effectuate the refund referred to hereinabove (toM/s Writers and Publishers Ltd.), we consider it just and appropriate ABC

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Ato 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 itfrom the Super Bazar establishment, during the period underconsideration. The determination so made by the Auditor, will beverified by the office of the Comptroller and Auditor GeneralBof India, 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.

We hereby also direct, that M/s Writers and Publishers Ltd., willCforthwith handover (within two weeks) against inventory andreceipt, all concerned documents and actual physical possessionof all movable and immovable properties of the Super Bazar, tothe Official Liquidator.”

15. The OL was directed to bring to sale all the properties ofDSuper Bazar and to deposit the proceeds in an escrow account. Apartfrom the direction, the court directed that on the filing of an application,WPL would be entitled to withdraw:

(i) An amount of ` 14.84 crore together with accrued interestwhich was deposited in the Registry of this Court; and E

(ii) An amount of ` 8.07 crore together with accrued interestwhich was deposited with the Regional Commissioner, EPFO,Delhi.

These amounts were to be deducted from the payments to beFmade to WPL. In pursuance of the order of this Court dated 29 March2016, WPL claims to have handed over the documents pertaining toSuper Bazar, together with actual physical possession of Super Bazarproperties, to the OL.

16. The workmen instituted a review petition against the orderdated 29 March 2016 which was dismissed on 28 September 2016. AGcurative petition filed by the workmen was dismissed on 15 December2016. The OL instituted IAs[14] in March 2017 seeking an extension oftime for the completion of the audit and for permission to conduct the sale of properties in order to effect payment to WPL. On 30 June 2017,WPL moved contempt proceedings[15] seeking the disbursement of theconsideration amounting to ` 28.80 crore received from the sale ofimmovable properties of Super Bazar.

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17. The OL filed the report of the CAG on an affidavit on4 September 2017. Some of the salient features which emerged fromthe CAG report are identified below:

A. The share capital of ` 102 crore:

(i) During the financial year 2009-10, WPL introduced only anCamount of ` 35 crore as against the committed amount of` 102 crore. Out of the ` 35 crore which was introducedtowards share capital, ` 28 crore was invested in fixed depositswith banks. Further infusions of money in the form of sharecapital were to be invested for enhancing the business activityof Super Bazar, which was not done. As against seventy-Dthree stores which were planned to be re-opened in terms ofthe revival, only one was made operational in January 2010;

(ii) During the financial year 2009-10, WPL revised the minimumextent of share capital to be subscribed and paid by themembers of the cooperative society from five shares permember to fifty shares per member by amending the byelaws.The management assumed the power to forfeit themembership of existing members if they failed to subscribeto the additional shares required to be subscribed to as perthe amended byelaws. Through this process, the share capitalof Super Bazar which was subscribed to by 39,760 memberswas forfeited and 14,149 new members were introduced intothe society. This modus operandi enabled WPL to takeabsolute control over the co-operative society; and (iii) Thenew members inducted under WPL’s management were notgenuine; proper modalities were not followed; and membershipmoney was accepted in cash. There is an absence of details,including addresses, and letters addressed by the auditors tothe ostensible new members were either returned undeliveredor with members stating that they had not entered into anysuch transaction.

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AB.Doubtful dealings:

(i) An advance of ` 20 crore was given to a vendor (PremierIndustries India Limited) in January 2011 without interest.On 30 March 2011, a purchase of ` 23.93 lakh was madeand simultaneously the same goods were sold back to theBsame party on that very date for ` 24.18 lakh. In the contextof a trade of ` 24 lakh, the advance of ` 20 crore is notsupported by any business rationale. The advance resultedin an interest loss of ` 36.73 lakh;

(ii) During the financial year 2011-12, more than 67 per cent ofCSuper Bazar’s turnover was recorded in book entries only.The total turnover was ` 30.29 crore whereas the turnoverrecorded in the Bhopal branch was ` 21.37 crore. Goodswere purchased and sold to the same party, namely PremierNutrition. Premier Nutrition is a proprietorship concern ofPremium Industries India Limited, to whom an advance ofD` 20 crore was outstanding. These transactions are notgenuine as the bills specifically mentioned that there was nomovement of goods and there was no flow of funds at thetime of sale or purchase. The transactions were set up toshow the revival of Super Bazar; and E(iii) During the financial year 2012-13, over fifty per cent of theturnover was recorded only by book entries without the actualmovement of goods. There are instances where goods weresold at an earlier date and purchased at a later date. Thetransactions entered into pertained to two enterprises: goodsFwere ostensibly sold by Manthan Milk Products PrivateLimited and Premier Industries (India) Limited and purchasedby Premier Nutrition and Premier Proteins Limited.

C. MoUs with third parties:

C. MoUs with third parties:

(i) On 18 April 2011, a MoU was entered into between RDGRetail Marketing Private Limited and Super Bazar, by whichthe right to manage and operate stores was given to the former.At the time of the submission of the revival bid, WPL hadstated that it possesses the experience and specializedmanpower for managing multi product-multi locationactivities. The MoU was contrary to the scheme of revivalH

which postulated that WPL had the necessary expertise torevive Super Bazar and expressly restrained WPL fromcreating third party interests in Super Bazar and its properties.Despite this, WPL entered into an agreement with RD RetailMarketing Private Limited to manage and operate all thestores that were run by Super Bazar;

(ii) An MoU was entered into between Super Bazar and SaharaQShop Unique Product Range Limited. On 8 June 2013, theright to manage and operate the stores was handed over tothe latter. As in the case of the earlier MoU, this was inbreach of the revival plan under which WPL was restrainedfrom creating third party rights. Though under the MoU SuperBazar was entitled to a margin of 5.5 per cent on a monthlysales of up to ` 2 crore, Sahara QShop debited only one percent and the balance remains to be recovered; and

(iii) On 2 July 2015, Super Bazar entered into an MoU with SunAgri Fresh Industries Private Limited. Despite the revivalscheme stipulating that no third-party rights could be createdin the properties of Super Bazar, the MoU granted Sun AgriFresh Industries Private Limited the right to manage andoperate all the stores of Super Bazar. Under the terms of theMoU, an amount of ` 1,00,00,000 was to be deposited withSuper Bazar as security against the rights granted. The amountwas paid to Super Bazar but was immediately refunded andthus never constituted a security deposit.

D.Stripping of assets:

While using the Connaught Place building for conductingthe business of Super Bazar, WPL caused extensive damageto the building. All the lifts, shutters, furniture and fixtureswere removed and sold and even the partition walls wereremoved. As chartered accountants, the auditors were notin a position to quantify the actual loss caused to the buildingand structure; E.Decreasing trend of gross profits:

Between 2009-10 and 2015-16, there was a decreasing trendin the gross profits of Super Bazar on a year to year basis.Even though the stores which were managed by third parties A

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Arecorded gross profit, those managed by WPL incurred losses.This was indicative of mismanagement or pilferage of stockrecords, which were not available for review.

18. The summary of the audit report, as verified by the CAG, isdivided into four parts:

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(i) Part-I shows the amount recoverable from WPL on accountof various amounts received by it during its operation of SuperBazar after deducting the balance payable on account of theworking capital infused by WPL into Super Bazar: ` 29.66crore; C

(ii) Part-II shows the amount payable to WPL on account ofshare capital invested by it after the adjustment of lossesincurred during the period when management control of SuperBazar was with WPL: ` 57.54 crore;

(iii) Part-III shows the amount recoverable from WPL in respectDof third parties which were introduced and dealt with by WPLwhen Super Bazar was under its management: ` 24.49 crore;and (iv) The EC had been constituted by this Court forevaluating bids which had been received from three biddersfor the revival of Super Bazar. The EC recommended the bidof WPL on the basis that it was to infuse funds to the extentEof ` 504 crore, comprising of ` 102 crore towards share capital,` 276 crore towards working capital and ` 126 crore towardsrevival and revamping the operations of Super Bazar. Asagainst the above commitments, while WPL introduced ` 102crore towards share capital, the maximum working capitalFinfused by WPL over a period of six years was ` 28.79 croreas on 31 December 2015 which was subsequently withdrawnand reduced to ` 9.34 crore as on 31 March 2016. Thisresulted in a shortfall of ` 247.21 crore towards workingcapital. The amount of ` 126 crore towards revival andGrevamping of operations was never brought in by WPL. As aresult of this, the total investment which was to be madeunder the revival plan was deficient to the extent of ` 373.21crore. If this amount had been infused as committed therewould have been an interest cost computed at nine per centper annum over a period of six years from August 2009 toHMarch 2016.

WPL’s Claim

19. Pursuant to the order dated 29 March 2016 which directedWPL be refunded its entire investment, the total claim for refund broughtby WPL as of 31 March 2019 amounts to ` 142,51,65,978. The breakupof this amount is reflected in the following tabulation chart:

I.Share capital infused by WPL` 102,00,00,000/-II.Working capital infused by WPL` 9,34,09,794/-III. Interest on share capital at 6%` 41,69,13,540/-(between 2.8.2007 and 31.3.2016)IV.Interest on share capital at 6%` 15,57,42,644/-(between 1.4.2016 and 31.3.2019)V. Total amount` 168,60,65,978/-VI. (Less) Amount refunded by EPFO` 11,25,00,000/-VII. (Less) Amount refunded by Supreme` 14,84,00,000/-Court RegistryNet Amount claimed` 142,51,65,978/- At the time of the submission of the verification report by theCAG dated 1 September 2017, interest up to 31 March 2016 was claimed,therefore for the purposes of the verification report by the CAG, thenet amount claimed was ` 126.92 crore. Subsequently, WPL has claimedinterest from 1 April 2016 to 31 March 2019.

The Computation by the CAG

20. Contrary to the above amount claimed by WPL, according tothe CAG’s computation, the final amount payable to WPL is ` 3.39 crore.This is indicated in the following table:

Part I: Amount to be recovered from WPL–` 29,65,58,133/-Determined by (i) adding the various amountsreceived by WPL during the period it was inmanagement of Super Bazar, and by (ii)deducting the working capital brought in byWPLPart II:Amount to be paid to WPL–` 57,53,67,149/-Determined by adding the share capital investedand adjusting this against the losses incurred to A

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ASuper Bazar during the period it was under themanagement of WPL.Part III: Amount to be recovered from WPL–` 24,49,19,323/-These are amounts that WPL ought to haverecovered from third parties that it introducedBand dealt with during the period it managedSuper Bazar.Net amount payable to WPL = (Part II) –` 3,38,89,693/-(Part I+III)

At this stage it may also be noted that the CAG has included aCredrafted profit and loss statement indicating that the total loss incurredfor the entire period was ` 44.96 crore. The CAG calculated WPL’sshare of the loss proportional to its shareholding in Super Bazar (98.89per cent) at ` 44.46 crore.

21. The net outstanding amount worked out by the CAG asDpayable to WPL is computed in the following manner:

(i) The investment made by WPL in the share capital of SuperBazar: ` 102,00,00,000 (Rupees 102 crore);

(ii) Less net amount recoverable from WPL on account ofpayments received by it during the operation of Super BazarEafter deducting the working capital brought in by WPL:` 29,65,58,133 (Rupees 29.66 crore);

(iii) Less net amount recoverable from WPL on account of thirdparty claims: ` 24,49,19,323 (Rupees 24.49 crore); and

(iv) Less the loss incurred by WPL since it had taken over theFbusiness of Super Bazar: ` 44,46,32,851 (Rupees 44.46 crore).

After deducting the above amounts from the share capital broughtin by WPL, the amount to be refunded works out to ` 3,38,89,693 (Rupees3.39 crore).

G22. The amount of ` 29,65,58,133 which is referred to in (ii) abovehas been computed in the following manner:

a) Balance of working capital` 9,34,09,794/-b) Interest on share capital at 6% (disallowed)` 41,69,13,540/- Note:According to CAG, no interest isH

payable to WPL on the amount brought inA towards share capital since dividends can only be paid on share capital where the entity has made a profit.c) EPF payment refunded` 11,25,51,046/-Bd) Amount refunded by the Supreme Court` 14,84,65,856/- Registrye) Amount withdrawn up to 12 April 2016` 9,00,000/-f) Amount recoverable on account ofC discrepancies e.g. income not booked and expenses not supported with documentsg) Interest on security deposit of Sun Agri Fresh` 6,73,770/-D Total Amount recoverable` 29,65,58,133/- The amount of ` 12,73,77,255 referred to in the above table(amounts recoverable on account of discrepancies) has been computedunder the following heads:

Expenses not supported by documents` 2,71,76,178/-EExpenses not related to Super Bazar Bills` 64,28,961/-Bills which don't seem to be genuine` 4,22,86,552/-Income not booked/escaped (unconnected receipts)` 2,15,58,130/-Amount paid to Director of Estate and Legal` 3,65,88,140/-FProfessionals for INA ShopCash payments made against market survey` 13,71,800/-Fire fighting expenditure without any related` 1,53,000/-documentary evidenceGRent of Connaught Place building not included(-) ` 75,93,756/-in 2015-16 accountsRent of INA Shops not included in 2015-16(-) ` 5,91,750/-accountsHTotal Amount` 12,73,77,255/- AThe amount of ` 24,49,19,323 which is reflected in (iii) abovewhich has been deducted from the investment of ` 102 crore in sharecapital is computed as follows:

Amounts recoverable from Sahara Q Shop`5,44,40,075/-Amount recoverable from Premier Industries,` 9,07,05,206/-BManthan Milk, Premier Nutrition and PremierProteinsAmount recoverable from RD Retail Marketing` 9,97,74,042/-Total amount recoverable ` 24,49,19,323/-C

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Submissions

23. During the course of the present proceedings, Ms MadhaviDivan, learned Additional Solicitor General of India, has greatly assistedthis Court by providing a detailed explanation of the report of the auditorDand the verification conducted by the CAG. It is the position of the Centralgovernment that the findings of the CAG are correct and binding on allparties including WPL.

Arguments

24. Mr Harin Raval, learned Senior Counsel appearing on behalfof the OL, has supported the submissions of the Union government andEfurther argued that the amount to be refunded to WPL must be inaccordance with the CAG’s report and the statutory order of prioritiesfor the settlement of liabilities provided in the Multi-State Co-operativeSocieties Act 2002.

25. Critiquing the CAG report and opposing the above submissions,FMr CA Sundaram, learned Senior Counsel appearing on behalf of WPLsubmitted that:

(i) By the order of this Court dated 29 March 2016, WPL wasentitled to a refund of the entire investment together withinterest at the rate of 6 per cent per annum, subject to theGdeduction of the profits made during the period when thearrangement subsisted;

(ii) Between 2009-2016, WPL brought in ` 102 crore towardsshare capital and ` 9.34 crore towards working capital. Thus,the total moneys which were received by Super Bazar fromHWPL over this period stood at ` 111.34 crore.

As against the aforesaid amount, the undisputed expenditureon Super Bazar between 2009-2016 was ` 54.31 croretowards the arrears of wages paid to workmen and a furthersum of ` 31 crore paid to the workmen over three yearsbetween 2009-2012 besides ` 15 crore paid towards statutorydues including arrears of property tax and freehold charges.The undisputed expenditure of WPL on the Super Bazarconcern would thus stand at ` 100.31 crore;

(iii) The order dated 29 March 2016 makes it abundantly clearthat WPL was entitled to the refund of the entire investmentwith interest at 6 per cent per annum and the only deductionthat was permissible was on account of the profits whichit had received. The order did not contemplate any deductionof losses;

(iv) The CAG has proceeded on a misconceived assumption that(a) WPL was not entitled to interest on share capital since,as shareholders WPL would only be entitled to dividends andnet interest; and (b) Dividends are only payable if a companyhas earned profits.

Assessing WPL’s Revival of Super Bazar

26. In assessing the above submissions, it is at the outsetnecessary to emphasise the remit given to the CAG in terms of theorder of 29 March 2016. By its order, this Court directed the CAG to:

“nominate an Auditor, to verify the income and expenditure incurredby M/s Writers and Publishers Ltd., and also, the profits earnedby itfrom the Super Bazar establishment, during the period underconsideration. The determination so made by the auditor, will beverified 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.”

(Emphasis supplied)

In this backdrop, the order recorded as follows:

“...we are satisfied in recording, that M/s Writers andPublishers Ltd. should be refunded the refunded the entireinvestment made by them, along with interest at the rate of6% per annum (though it was suggested, that the rate of

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Ainterest could be at 9% per annum), subject to deduction ofprofits made during the period when the arrangementsubsisted”.

The purpose of the above direction of this Court in nominatingan auditor was to ensure a proper verification of the income andBexpenditure incurred by WPL and the profits earned from the SuperBazar establishment. Underlying the above direction of this Court wasthe necessity that the auditor conduct a due verification of the actualand genuine income as well as the expenditure which was incurred byWPL. That was premised on the assumption that in pursuance of therevival plan, a genuine effort had been made by WPL to revive SuperCBazar. This was however yet to be verified. The facts which emergedin the course of the CAG report were subsequent to the order dated 29March 2016. These facts were neither in the knowledge of the court norcould they have been factual considerations that were borne in mindwhen the order was passed. The circumstances which have come onDthe record as a result of the verification which has been carried out bythe CAG upon the report of the auditor indicate several significant facets.Firstly, though in terms of the revival plan, a solemn commitment wasmade by WPL to bring in an investment of ` 504 crore comprising of` 102 crore towards share capital, ` 276 crore towards working capitaland ` 126 crore towards revival and revamping the operations of SuperEBazar, WPL fell woefully short of this commitment. An amount of ` 102crore was brought in towards share capital and ` 9.34 crore towardsworking capital. The commitment to bring in working capital of ` 276crore and investment for reviving and revamping of ` 126 crore wasplainly breached. Secondly, while bringing in the amount of ` 102 croreFtowards share capital, WPL by the modus operandi which it followed,ensured that it took over 98.89 per cent of the shareholding, ensuringit controlled the management and operations of Super Bazar. This, asthe CAG report indicates, was achieved by requiring existing membersof the cooperative society to subscribe to additional capital on the pain of forfeiture of their existing shareholdings. Additional members whoGwere inducted by WPL were found by the CAG to be bogus. Thirdly,WPL while submitting its bid for the opportunity to revive Super Bazarhad made a solemn representation that it possessed the necessaryexpertise to manage the Super Bazar stores. Instead, it entered intovarious MoUs with third parties for running and conducting the stores inHbreach of the restrainingcovenants contained in the revival plan. Fourthly, large and unexplained advances were made by WPL during the periodwhen it was in control of Super Bazar. Advances as high as ` 20 crorewere not backed by any business rationale. It dealt with third parties onthe basis of book entries without any real movement of goods or funds.Fifthly, during the period when it was in management and controlof Super Bazar, the physical assets of the concern were strippedand the building at Connaught Place was deprived of all its essentialfixtures.

27. The findings which have emerged in the course of theverification by the CAG leave no manner of doubt that WPL did notintend at any material time to embark upon the revival of Super Bazar.The business and affairs of Super Bazar were conducted in a mannerthat was sham and bogus. It dealt with related entities as explained inthe report. The transactions and the modalities followed are indicativeof a lack of bona fides on the part of the WPL in its operations.

Statutory Scheme applicable to Super Bazar

28. Chapter X of the Multi-State Co-operative Societies Act 2002deals with the winding up of multi-state co-operative societies. Undersub-section (1) of Section 86, the Central Registrar is empowered todirect the winding up of a multi-state co- operative society after an audit,special audit or an inquiry or, as the case may be, or an inspection underSections 70, 77, 78 and 79 respectively. Sub-section 2(b) empowers theCentral Registrar of his own motion to direct the winding up of a multi-state co-operative society which has ceased to function in accordancewith co-operative principles. Section 89 provides for the appointmentof a liquidator while Section 90 provides for the powers of the liquidator.Under Section 90(1), all the assets of a multi-state co-operative societyin respect of which an order of winding up has been passed, vest in theliquidator from the date on which the order takes effect. The liquidatoris entrusted with the power to realise monies from the assets. Underclause (b) of sub-section 2 of Section 90, the liquidator is empoweredto determine the contribution to be made or remaining to be made by themembers or past members or by officers or former officers to the assetsof the society. Under clause (c) of sub-Section (2) of Section 90, theliquidator is empowered to investigate all claims against the society andsubject to the other provisions of the statute, to decide questions ofpriority between claimants. Under clause (d), the liquidator is empoweredto pay claims against the society, including interest up to the date of AB

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Awinding up according to their respective priorities in full or rateably, asthe assets of the society may permit. The surplus, if any that remains,has to be applied in the payment of interest from the date of the order ofwinding up.

29. Rule 28 of the Multi-State Co-operative Societies Rules 2002Blays down the procedure to be adopted by the liquidator. Rule 29 providesfor the order of priority in accordance with which the assets of a multi-state co-operative society shall be applied in the payment of liabilities.Rule 29 provides as follows:

“29. Application of assets of the multi-State co-operativeCsociety- The assets of the multi-State co-operative society shallbe applied in order of priority as given below tor payment ofthe liabilities:(1) Pro- rata payment of all outside liabilities.

(2) Pro-rata repayment of loans and deposits of members. (3)Pro-rata refund of share capital.

D(4) Pro-rata payment of dividend on the share at the rate notexceeding 6.25 per cent. per annum for the period of liquidation.”

Analysis of WPL’s Claim for Refund

30. An order of winding up had been passed on 5 July 2002. Bythe order of this Court dated 26 February 2009, it was directed that theEOL and the Central Registrar take steps for the revival of the SuperBazar following the acceptance of the bid submitted by WPL. Pendingthe revival of Super Bazar, the order of winding up was to remainsuspended. By the order dated 29 March 2016, the court recorded thatin spite of the earnest efforts made by the court since the acceptance ofFWPL’s bid and the series of hearings since 2009, it was not possible togive effect to the terms of revival. The order indicates that suggestionswere invited from the rival parties in regard to the manner in which thearrangement with WPL could be terminated. Initially a joint statementwas submitted by the Government of India and WPL on 3 March 2016,but it would appear that upon re-consideration the Government of IndiaGsubmitted a revised statement dated 5 March 2016. It was in this backdropthat the court by its order dated 29 March 2016 noted that it was “satisfiedin recording” that WPL should be refunded the entire investment togetherwith interest at 6 per cent per annum, subject to the deduction of theprofits made during the period when the arrangements subsisted. At thatHstage, the court envisaged the appointment of an auditor by the CAG for the purpose of verifying the income received and expenditure incurredby WPL and the profits earned by it from the Super Bazar establishment.Upon the auditor making a determination, the amounts were to beverified by the CAG whose determination was to be binding on all theparties including WPL. At the stage when the above order was passedby this Court, the Court did not have the benefit of the auditor’sinvestigation. Nor were the facts which emerged subsequently in thereport of the CAG within the knowledge of the court. The order of thecourt envisaged a due and proper verification at two levels; first by theauditor and thereupon by the CAG. This verification was to underliethe ultimate computation of the profits earned by WPL. It is impossibleto read the order of this Court as containing an implication that WPLwas only liable to account for the actual profits earned by it during theperiod when it operated Super Bazar or that it was relieved of theresponsibility of accounting for its dealings during the period when itwas in management of the establishment. No part of the order of thisCourt contains a direction to the effect that WPL would not be held toaccount, upon a verification by the CAG, for the nature of its dealingsduring the period when it was in management. To accept the submissionof WPL that no deduction could be made from the investment which ithad brought in save and except for profits actually earned would be asimplistic reading of the order of this Court. The entire process ofverification of the income and expenditure was designed not only for thepurpose of deducing the profits which was earned by WPL. The Courtwas also conscious of the fact that in devising the terms for exit ofWPL, it was not appraised at that stage of the nature and extent of thedealings of WPL in its management of Super Bazar. The order of thisCourt therefore can only be read to mean that WPL would be held toaccount for the period when it was in management based on the resultof the verification initially by the auditor and thereupon by the CAG.

31. The above view which we have taken of the interpretation ofthe order dated 29 March 2016 must also be juxtaposed in light of thestatutory provisions which govern an order of winding up under Section89 and other cognate provisions of the Multi-State Co-operative SocietiesAct 2002. The statute lays down the manner in which the liquidator hasto function upon taking charge. The Multi-State Co- operative SocietiesRules 2002, in particular, indicate the procedure to be adopted by theliquidator and the manner in which the assets are to be applied. Theorder of priority is spelt out. A pro-rata refund of share capital appears AB

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Athird in the order of priority. The last in the order of priorities is apro-rata payment of dividend on share capital at a rate not exceeding6.25 per cent for the period of liquidation. To allow the claim of WPL tobe refunded its entire investment amount, the major part of which tookplace through the subscription of share capital, would essentially placeit outside the purview of the winding up proceedings. Accepting theBclaim would enable it to take away moneys overriding the order ofpriorities laid down by the Multi-State Co-operative Societies Rules 2002.WPL was one of the three bidders invited to bid for the opportunity totake over the management of Super Bazar and revive its operations.WPL was under no legal obligation to submit a bid. It engaged in aCfree-standing market process, albeit one supervised by this Court,through which WPL sought to turnaround the business of Super Bazarand subsequently receive profits from the business. This is supportedby the conduct of WPL in squeezing out existing members andsecuring for itself 98.89 per cent of the share capital of Super Bazar.Having failed in its market endeavour to revive Super Bazar, it nowDseeks to exit its investment with a full refund and without having toaccount for the business which was carried on during the period whenSuper Bazar was under the management of WPL. Such a course ofaction would be contrary both to the first principles which governwinding up as well as the statutory scheme which is embodied inESections 89 and 90 of the Multi-State Co-operative Societies Act 2002and Rules 28 and 29 of the Multi-State Co-operative Societies Rules2002.

Dues owed to the EPFO

32. During the course of the hearing, the EPFO has appearedFbefore this Court. Mr Siddharth, learned Counsel appearing on behalfof the EPFO has placed on record:

(i) An order dated 13 July 2015 passed by the RegionalProvident Fund Commissioner – II, Delhi (North), holdingWPL liable for the payment of provident fund contributionsGin respect of all the employees to whom arrears of wageshave been disbursed for the period from May 2003 toDecember 2007; and

(ii) An order dated 25 July 2016 determining the dues payable tothe EPFO at ` 8.43 crore for the period from May 2003 toHDecember 2007.

33. In adjudicating the present matter, this Court must bear inmind the provisions of the EPF Act. Section 11 provides that where anorder of winding up is made, due sowed towards employees’ providentfund (or any other liability mentioned therein) shall be paid inpriority to all other debts in the distribution of the property or theassets of the entity which is being wound up[16]. Interpreting the provisionsof Section 11(2), a three judge Bench of this Court in MaharashtraState Cooperative Bank vAssistant Provident FundCommissioner[17]has held:

“31…The priority given to the dues of provident fund, etc. inSection 11 is not hedged with any limitation or condition. Rather,a bare reading of the section makes it clear that the amountdue is required to be paid in priority to all other debts. Anydoubt on the width and scope of Section 11 qua other debtsis removed by the use of expression “all other debts” inboth the sub-sections. This would mean that the priority clauseenshrined in Section 11 will operate against statutory as well asnon-statutory and secured as well as unsecured debts including amortgage or pledge. Sub-section (2) was designedly inserted inthe Act for ensuring that the provident fund dues of the workersare not defeated by prior claims of secured or unsecured creditors.This is the reason why the legislature took care to declarethat irrespective of time when a debt is created in respectof the assets of the establishment, the dues payable 16 11. Priority of payment of contributions over other debts.- [(1)] [Where anyemployer is adjudicated insolvent or, being a company, an order for winding up is made,the amount due- (a) From the employer in relation to [an establishment] to which any [Scheme or theInsurance Scheme] applies in respect of any contribution payable to the Fund [or, asthe case may be, the Insurance Fund] damages recoverable under section 14B,accumulations required to be transferred under sub-section (2) of section 15 or anycharges payable by him under any other provision of this Act or of any provision of the[Scheme or the insurance Scheme]; or (b) From the employer in relation to an exempted [establishment] in respect ofany contribution to [the provident fund or any insurance fund] (in so far as it relatesto exempted employees), under the rules of [the provident fund or any insurance fund],[any contribution payable by him towards the [Pension] Fund under sub—section (6)of section 17,] damages recoverable under section 14B or any charges payable by himto the appropriate Government under any provision of this Act or under any of theconditions specified under section 17, Shall where the liability thereof has accruedbefore the order of adjudication or winding up is made, be deemed to be included]

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Aunder the Act would always remain first charge and shallbe paid first out of the assets of the establishmentnotwithstanding anything contained in any other law for thetime being in force. It is, therefore, reasonable to take the viewthat the statutory first charge created on the assets of theestablishment by sub-section (2) of Section 11 and priorityBgiven to the payment of any amount due from an employerwill operate against all types of debts.”

(Emphasis supplied)

34. In view of the above discussion, we have come to theCconclusion that the plea of WPL to receive payments at the presentstage would confer on it a preference and priority which would be in theteeth of the statutory provisions contained in the Multi-State Co-operativeSocieties Act 2002 and the EPF Act. We have found no substance inthe challenge that has been preferred on behalf of the WPL to thedetermination which has been made in the audit report following whichDa verification has been carried out by the CAG. The claim of WPL tothe extent set out in the verification report by the CAG will necessarilyhave to be dealt with by the liquidator upon the realization of the assetsof Super Bazar in accordance with the statutory order of prioritiescontained in the Multi-State Co-operative Societies Rules 2002. TheEverification made by the CAG is final and binding and shall not be calledinto question before the OL or in any proceeding.

among the debts which under section 49 of the Presidency Towns Insolvency Act,1909 (3 of 1909) or under section 61 of the Provincial Insolvency Act, 1920 (5 of 1920)or under [section 530 of the Companies Act, 1956 (1 of 1956)], are to be paid inpriority to all other debts in the distribution of the property of the insolvent or theFassets of the company being wound up, as the case may be.

[Explanation.- In this sub-section, and in section 17, “ insurance fund” means anyfund established by an employer under any scheme for providing benefits in the natureof life insurance to employees, whether linked to their deposits in provident fund ornot, without payment by the employees of any separate contribution or premium inthat behalf.]

G[(2) Without prejudice to the provisions of sub-section (1), if any amount is due froman employer [,whether in respect of the employees’(deducted from the wages of theemployees) or the employer’s contribution], the amount so due shall be deemed to bethe first charge on the assets of the establishment, and shall, notwithstanding anythingcontained in any other law for the time being in force, be paid in priority to all otherdebts.]H17 (2009) 10 SCC 123

35. The liquidator shall evaluate the claim as determined by theverification report by the CAG in terms of the priorities for the paymentof claims as envisaged in the Multi-State Co-operative Societies Act2002 and the associated rules. The liquidator is also directed to treatthe amount outstanding to the EPFO in terms of the first priority whichis created by the provisions of Section 11(2) of the EPF Act. Theliquidator shall also consider the claim of the Union government.The liquidator is directed to consider the auditor and the CAG’sobservations with respect to the 14,149 new members inducted duringWPL’s management not being genuine. The liquidator shall, in the processof winding up, be at liberty to consider all other claims received and tomake a determination in accordance with law. In the event any furtherjudicial determinations are required to be made, parties shall be at libertyto approach the High Court of Delhi and we request the Chief Justice ofthe High Court to constitute an appropriate bench to hear any mattersarising out of the liquidation of Super Bazar.

36. The contempt petitions shall stand dismissed. All miscellaneousapplications are accordingly disposed of in the above terms.

Kalpana K. Tripathy

Contempt Petitions dismissed.

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