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ORDINARY ORIGINAL CIVIL JURISDICTION

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OFFICIAL LIQUIDATOR'S REPORT NO. 188 OF 2014


WITH
OFFICIAL LIQUIDATOR'S REPORT NO. 254 OF 2015
IN
COMPANY PETITION NO. 719 OF 2002

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

In the matter of Companies Act, 1956;

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And

Asha Bhosale

In the matter of M/s. Magnasound India Ltd.


Petitioner

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Mr. J.P. Sen, Senior Advocate i/b Mr. Rakesh Reddy, Advocate for the Official
Liquidator.
Dr. Virendra V. Tulzapurkar, Senior Advocate a/w Mr. Hiren Kamod and Mr.
Nikhil Sharma i/b W.S. Kane & Co. for Magnasound Media Pvt. Ltd.

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Mr. Chetan Kapadia, i/b Mr. Rahul Kadam for Mr. Shashi Gopal.
Mr. Amit Jamsandekar a/w Mr. Dhiraj Mhetre i/b Desai & Diwanji for Sony Music
Entertainment India.

Mr. S. Ramakantha Official Liquidator present.


CORAM; S.J. KATHAWALLA, J.
Judgment reserved on: 11th June, 2015
Judgment pronounced on: 21st October, 2015

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JUDGMENT

1.

By the above reports, the Official Liquidator is seeking a declaration that

a Deed of Assignment dated 14.03.2012 executed by Mr. Shashi Gopal, an exdirector of Magnasound India Ltd. (MSIL), the Company (In Liqn.), in

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favour of one Magnasound Media Pvt. Ltd. (hereinafter MMPL) is illegal


and void. The Official Liquidator is also seeking other consequential directions

including, inter-alia, a direction to MMPL and Sony Music Entertainment Pvt.


Ltd. (hereinafter Sony Music) to hand over the documents and assets which

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were the subject matter of the purported Deed of Assignment and also for
directions to restrain MMPL and Sony Music from dealing with these assets.

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2.

It is the Official Liquidators case that Shashi Gopal, in purported

exercise of his rights as a Subrogee, has after the winding up order sold assets

belonging to the Company (In Liqn.) without the leave of this Court, without
valuation and without inviting public offers to a related party at a price
randomly fixed by the Assignor (Mr. Shashi Gopal) and the Assignee (MMPL).
It is submitted on this basis that the Assignment is void as contrary to Sections
536(2) and 537(1)(b) of the Companies Act, 1956.

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The Company in liquidation had sometime in the late 1990s, availed of

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3.

certain facilities from Union Bank of India (hereinafter UBI). In this


connection, the Company had executed Three Deeds of Hypothecation dated
12.8.1998, 30.7.1999 and 28.7.2000 in favour of UBI in respect of the copyright

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in recordings containing the original music compositions rendered by various


artistes and which were owned by the Company. Each of the Deeds of

Hypothecation contained a clause which permitted the Lender, in the event of


the borrower committing default, to sell all or any part of the hypothecated sound

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recording copyrights in such manner as the bank shall think fit, but by giving 15 days
notice to the borrower and either by public auction, private Contract or tender

4.

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On 16.7.2002, the above Company Petition came to be filed by the

Petitioner Asha Bhosle for winding up the company on account of its failure to

discharge its payment obligations to the Petitioner. On 30.4.2003, the OL, High
Court, Bombay came to be appointed as the Provisional Liquidator of the
Company. Meanwhile, the Company also appears to have been in default of its
obligations to UBI as a result of which UBI filed OA No.186 of 2004 before the
DRT, Mumbai for recovery of their dues and enforcement of their securities

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including under the aforementioned deeds of Hypothecation.


On 23.4.2007, an order was passed by the DRT in terms of a compromise

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5.

Memo filed by UBI and the guarantors of the Company in Liquidation. The
compromise memo provided that the guarantors would submit to a decree on
admission in a sum of Rs. 8,56,33,265/- in favour of UBI. The said memo also

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recorded an OTS offer that had been accepted by the Bank for payment of a
sum of Rs. 520.06 lacs before September, 2006 by the Guarantors on which the

claim of the Bank was to stand fully satisfied. The compromise memo further
recorded that the guarantors were in a position only to pay Rs. 281.02 lacs and

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not the entire OTS amount. The guarantors were given an opportunity by the
compromise memo to revive the lapsed OTS for a further period of one year on
certain terms and conditions recorded in the compromise memo. The balance

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OTS amount of Rs.239.04 lacs was to be paid, inter alia, by the sale of the
Masters belonging to the Company in Liquidation after taking possession

from the Official Liquidator and obtaining permission from the DRT. The
Masters were to be brought to sale through DRT, with the Guarantors to
arrange for buyers at a minimum price of Rs. 150 lakhs. In the event of there
being a surplus over and above Rs. 150 Lakhs, the surplus was to go to the bank,
while any shortfall was to be made good by the Guarantors.

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The Compromise Decree does not seem to have been fully complied with

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6.

as a result of which the Debt Recovery Tribunal directed issuance of a


Recovery Certificate on 21.1.2008 for the balance amount of Rs. 212 lacs which
remained unpaid. The Recovery Certificate in the sum of Rs.212 lacs was

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thereafter issued on 30.4.2008.

On 15.5.2008, Shashi Gopal (an Ex Director of the Company in

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Liquidation and a guarantor) filed a Misc. Application before the DRT, inter

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alia, for purchase of the assets of the Company in Liquidation. The OL filed a
reply dated 27.5.2008 in this Misc. Application where he noted that the assets
may be sold by public auction only in one lot after publication of necessary

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sale notice and not by way of private treaty at any cost. On 20.6.2008, the said
Shashi Gopal filed an application for withdrawal of his Misc. Application. The

Misc. Application was thereafter disposed of as withdrawn.

8.

Meanwhile, on 24.3.2009, the DRT issued a Warrant of Attachment in

respect of the hypothecated assets of the Company in Liquidation. Thereafter,


Mr. Shashi Gopal appears to have entered into a bargain with UBI for payment

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of the balance dues of the bank. Accordingly, Shashi Gopal paid over to UBI

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the sum of Rs. 212 lakhs then outstanding. On this payment being made, a

Deed of Subrogation dated 25.6.2009 was executed between UBI and Shashi
Gopal under which the Bank purported to subrogate to Shashi Gopal complete
rights of Bank against MSIL in recovery of debt due under Consent Decree dated

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23.4.2007 including enforcement and realization of mortgaged and hypothecated


properties. The Deed of Subrogation also recorded, as it happens inaccurately,

that there appears to be no workers claims lodged before the Official Liquidator
and hence there is no pari passu charge in respect of the assets of the MSIL mentioned

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in the consent terms.

9.

On the same day, UBI served upon the OL an application for leave to

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withdraw the recovery proceedings pending before the DRT. By his report
dated 26.6.2009, the OL recorded that he had no objection if leave was granted

to withdraw the recovery proceedings. The said proceedings were accordingly


withdrawn.

10.

Thereafter, by a letter dated 28.7.2009, UBI informed the OL of the

Deed of Subrogation executed in favour of Shashi Gopal. The letter also

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recorded that the Bank had handed over possession of a Bungalow at Lonavala,

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one of the secured assets, alongwith the hypothecated assets lying therein. The
letter also recorded that the Bank did not have any other claim with respect to
the assets of the Company in Liquidation. In July 2009, Shashi Gopal filed a
Misc. Application no.632 of 2009 before the DRT seeking a direction to the OL

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to hand over the Masters/Artists Agreements/Stocks and other assets of the


Defendant No.1 Company (now in Prov. Liqn) lying in various branches and which

are hypothecated to the Applicant Bank. By his written submissions dated


4.8.2009, the OL recorded that he had no objection if the properties in the

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custody of UBI , the secured creditor, are handed over to Mr. Shashi Gopal and kept
under his custody . Accordingly, an order came to be passed by the DRAT on
5.8.2009 directing that the hypothecated assets be handed over to Mr. Shashi

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Gopal. Pursuant to the said order, these assets were handed over to Mr. Shashi

Gopal as recorded in two minutes dated 17.12.2009 and 18.1.2010.

11.

Meanwhile, by a letter dated 6.1.2010 addressed to the OL, Mr. Shashi

Gopal in his capacity as a subrogee claimed that all royalties if any payable by
music societies, Phonographic performance Ltd (PPL) and Indian Performing Rights
Society LTD (IPRS) are payable to me from 1996 onwards in respect of the use of

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Masters of Magnasound India Ltd if they have not already been paid. By this

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letter, Mr. Shashi Gopal sought a no objection letter from the OL in this regard.

By his reply dated 21.1.2010, the OL fixed a meeting on 25.1.2010 to discuss


Mr. Shashi Gopals role as a Subrogee and the issue regarding the collection of
any royalties payable, towards the use of the Masters of the Company in

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Liquidation. By this letter, the Subrogee was expressly told to maintain status

quo. Mr. Shashi Gopal did not attend the meeting so fixed.

12.

Consequently, the OL addressed another letter dated 28.1.2010 fixing a

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meeting on 9.2.2010. On 10.2.2010 the said Mr. Shashi Gopal addressed a


letter to the OL noting that he wished to withdraw his letter dated 6.1.2010
along with a request that no meeting be fixed in this regard. On 9.7.2010, a

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winding up order was passed in respect of the Company in Liquidation. It is the


case of Mr. Shashi Gopal that a letter dated 9.5.2011 was addressed by him to

the OL in which he informed the OL that he would sell/assign all the


copyrights in the sound recordings in the music/literary works and master and
all the rights in audio, video and cinematograph films owned by the Company to
recover the monies paid by me to the UBI on account of the Company together with
interest thereon at 18% p.a with monthly rests. It appears from the Inward

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Register maintained by the OL that the said letter dated 9.5.2011 was received

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by the office of the OL on 10.5.2011. It appears, however, that the said letter

was overlooked by the Office of the Official Liquidator on account of it not


having been placed in the file pertaining to the Company in Liquidation and not
having been put up before the Deputy OL or OL for necessary action. The OL

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asserts that it is in these circumstances that no reply was sent to the said letter.

On 21.5.2011, a public notice was issued by one MMPL Pvt Ltd in the

13.

Free Press Journal and Navshakti in respect of its intention to acquire the entire

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copyright in the repertoire of the Company in Liquidation. The said notice did
not come to the attention of the OL. Thereafter, a Deed of Assignment dated
14.3.2012 appears to have been entered into by the said Mr. Shashi Gopal and

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MMPL, a related party, transferring the entire repertoire of the Company in


Liquidation. MMPL in turn appears immediately thereafter to have negotiated

with Sony Music Entertainment Private Limited (Sony Music) for a license to
be granted in favour of Sony in respect of a part of the repertoire of the
Company in Liquidation. The Notices issued by Sony Music appear to have
come to the attention of the Petitioner hereinabove who by a letter dated
13.4.2012 called upon the OL to file an objection in response to the aforesaid

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notice.

14.

The OL, by a letter dated 20.4.2012 addressed to Sony Music recorded

that the assets of the Company in Liquidation vested in him and that any rights
in its repertoire could not be transferred or assigned without the permission of

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this Court. The OL also sought a copy of the documents on the basis of which
the public notice had been issued. A meeting was thereafter held on 24.4.2012

in the office of the Deputy OL at which the representatives of Sony Music also
remained present. At this meeting, these representatives undertook not to deal

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with the proposed acquisition/ licence in respect of the assets mentioned in the public
notice dated 11.4.2012.

This was followed, however, by an Advocates letter dated 2.5.2012

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15.

where Sony Music purported to claim that it was satisfied beyond reasonable

doubt that the title of MMPL with respect to the assets mentioned in the public notice
including the repertoire is free, clear and marketable as well as free from all
encumbrances. The letter went on to assert that the Company in Liquidation
was not the owner of the said repertoire and that the undertaking given by the
representatives of Sony Music at the meeting held on 24.4.2012 was wrongly

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taken and therefore stood withdrawn. By his reply dated 14.5.2012, the OL

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recorded that the attempt being made by Sony Music to withdraw their
undertaking was ill conceived and called upon them to maintain status quo
until the rights, if any, of MMPL in the catalogue/repertoire of the Company in

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Liquidation was ascertained.

16.

By their Advocates reply dated 6.6.2012, Sony Music claimed that UBI

had disposed of the repertoire with the prior consent of the OL as recorded in
an order of the DRAT and that in view of the entire repertoire being disposed

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of with prior consent as alleged, the Company in Liquidation was not the owner
of the said Repertoire. The letter further claimed that the OL had travelled
beyond his jurisdiction in taking an undertaking from Sony Music in relation to

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the said Repertoire and that the undertaking was invalid and bad in law. The
letter also recorded that Sony Music had already entered into an agreement

with MMPL under which Sony Music had been granted an exclusive license for
the said Repertoire. By this letter however, Sony Music did not furnish to the
OL copies of the agreements executed by them.

17.

It is only in the course of the hearing of the above report that Sony Music

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furnished to the OL four agreements, being an exclusive license agreement

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dated 7.5.2012, an exclusive license agreement dated 15.6.2012, a


Memorandum of Agreement dated 7.11.2012 and an addendum dated 5.3.2015.
Under these agreements (which purport to create a license in respect of a part
of the repertoire of the company in liquidation for a limited period) MMPL is

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entitled to payment of an aggregate minimum guaranteed amount of Rs.1.75


crores in addition to a share in revenue overflow. No material has been placed

on record by Sony Music regarding the revenue generated by them under the
said Agreements. It is significant, however that Sony Music entered into the

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said Agreements with full notice of the OLs claim.

18.

On 18.7.2012, the Petitioner in the above company Petition filed

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Company Application No, 498 of 2012, inter alia, impugning the purported
transfer by Shashi Gopal of the hypothecated assets in favour of MMPL.

Subsequently, however, the Petitioner having reached a settlement with Shashi


Gopal sought leave to withdraw the Company Application. This leave was
granted by an order dated 12.6.2014. By this order, the OL was permitted to
take out an independent application to challenge the legality of the purported
transfer. It is in these circumstances that the present report under

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consideration came to be filed.

In the course of his oral submissions, Mr. Sen, learned Senior Advocate

on behalf of the Official Liquidator, contended:


a)

That while it has been contended on behalf of Mr. Shashi Gopal

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that he is entitled to the benefit of the Compromise Memo filed


before the DRT, he cannot as a matter of law be so entitled. Any

reference in the Deed of Subrogation to his being so entitled is


clearly of no legal effect. This is on account of the fact that a Bank

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cannot assign its debt to a non banking entity nor can it assign a
recovery certificate or the benefit of a consent decree to such an
entity. In this behalf, he relied on the Judgment of the Honble

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Supreme Court in ICICI Bank Ltd. v. Official Liquidator for APS

b)

Star Industries Ltd.1 ;


That in the present case, UBI does not appear to have done so. It
has not assigned its debt, decretal or otherwise, to Mr. Shashi
Gopal but has merely transferred in his favour the benefit of the
securities held by them on account of his being a subrogee. This is
a benefit to which Mr. Shashi Gopal would have been even

1 (2010) 10 SCC 1 (paras 29, 30 to 40 and 41 to 44).

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otherwise entitled by operation of law on payment being made by

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him in his capacity as a guarantor of amounts due from the


principal debtor to the secured creditor;
c)

That Shashi Gopal is thus merely a Subrogee in respect of the


amounts paid by him to UBI. He is in that capacity entitled to the

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benefit of any security that the bank held for recovery of the
money paid by him. The principal debtor being a Company in

liquidation, Mr Shashi Gopal is entitled as a subrogee only to the


sum actually paid by him and not to any interest on the said

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amount unless there is an overflow after payment to all creditors.


This is on account of the fact that the dues of the secured creditors
and workers have to be determined as far as possible as on the date

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of the winding up order. He relied in this connection on the


Judgment of this Court in Vishwanath Namdeo Patil v. Official
Liquidator of Swadeshi Mills & Ors.2, and the Judgment of the
Honble Supreme Court in Bank of Maharashtra v. Pandurang
Keshav Gorwadkar 3;.

d)

That the Deeds of Hypothecation in the present case contain a


power of sale. However, the Company being in liquidation, the

2 (2013) 181 Com. Cas. 133, at 171 (paras 61-63)


3 2013 (3) ILR 119 (SC) (para 64)

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power of sale is qualified by the pari passu charge of the workmen

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under Section 529-A. The Subrogee can therefore sell only in


association with the OL. The earlier law that a secured creditor
would be free to deal with his security without reference to the
Official Liquidator is no longer good law. He relied in this behalf

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on the Judgments of this Court and of the Honble Apex Court in


Maharashtra State Financial Corporation v. Official Liquidator4;

International Coach Builders Ltd. v. Karnataka State Financial


Corporation5; Rajasthan State Financial Corporation v. Official

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Liquidator6; Bank of Maharashtra v. Pandurang Keshav Gorwadkar7;


Kingfisher Airlines v. SBI8;

e)

That the secured creditor cannot arrogate to himself the power to

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decide whether there are any workers claims. If workers claims

f)

have not yet been adjudicated, he must apply to the company court
seeking directions for sale;
That the fact that the OL has not objected to the subrogation in
favour of Shashi Gopal does not constitute an admission of

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6
7
8

AIR 1993 Bom 392 (paras 18 to 20)


(2003) 10 SCC 482 (paras 14-15, 24-25, 30, 32)
(2005) 8 SCC 190 (para 17)
2013 (3) ILR 119 (SC) (paras 62,63, 71, 72)
2015 (1) Kar LJ 19 (paras 16-18)

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everything in the Deed of Subrogation particularly an incorrect

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recital that no workers claims have been received. The OL has no


obligation to object to such a recital and the absence of such an
objection cannot, in any event, constitute a rejection of workers
claims which have in fact been made. That being so, the subrogee

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was not entitled to sell the hypothecated assets by private treaty


without reference to the Company Court;
That even otherwise, a hypothecatee or pledgee is in a fiduciary

g)

position and is obligated to sell a security in such a manner as

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would fetch the best possible price. In support of this proposition,


he relied on the Judgments of the Honble Apex Court in Lallan
Prasad v. Rahmat Ali & Anr.9; Jaya Singh Dnyanu Mhoprekar &

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Anr. v. Krishna Babaji Patil & Anr.10;

h)

That the law requires him to adopt every precaution in this respect
including obtaining a valuation and selling the property by public
notice. In this connection, he placed reliance on the Judgments of
the Honble Apex Court in Gajraj Jain v. State of Bihar & Ors.11;
FCS Software Solutions Ltd. v. LA Medical Devices Ltd. & Ors.12;

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11
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AIR 1967 SC 1322 (para 29)


AIR 1985 SC 1646 (para 9)
(2004) 7 SCC 151 (paras 12, 14)
(2008) 10 SCC 440 (paras 33, 36)

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That any sale by a fiduciary to himself or a related party is in any

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i)

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event clearly void. In support of this contention, he relied on the


Judgments of the Privy Council and the Apex Court in Achi
Thayar Ammal & Ors. v. Balkis Nachial13; L. Janakirama Iyer &
Ors. v. P.M. Nilkanta Iyer & Ors.14;

That any sale of the assets of a company in liquidation after the

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j)

commencement of liquidation is void under Sections 536(2) and

537(1)(b) of the Companies Act, whether by the company itself or


a third party. None of the Judgments cited by the subrogee raise

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the issue as to whether a sale by a third party would fall within the
ambit of these sections. The plain language of the section would
indicate that they would. That is certainly within the mischief

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sought to be remedied by the Sections;

k)

That the sale in the present case of the hypothecated assets


(without a valuation, a public auction or the leave of the company
court) by private treaty at a price randomly fixed to a related party
is liable to be set aside; and

l)That

the burden is on the person seeking to maintain a sale under


Sections 536(2) or 537(1)(b) to plead and prove that the sale was

13 AIR 1931 PC 68 (70, col. 1)


14 AIR 1962 SC 633 (para 29)

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for the benefit of the company. He relies in this behalf on the

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Judgments of this Court in BIFR v. M/s. Hindustan Transmission

Products Ltd.15; Sunita Vasudeo Warke v. Official Liquidator16. In the


present case, that burden has not been discharged.
20.

Dr. Tulzapurkar, Learned Senior Advocate for MMPL, submitted in

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reply:

That Section 536(2) of the Companies Act has no application to the sale

a)

by a third party of the assets of the company in liquidation and applies


only to a sale by the company itself. He relied in this behalf on the

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Judgments in Pankaj Mehra v. State of Maharashtra17; BNP Paribas v.


United Breweries Holdings Ltd.18; Sunita Vasudeo Warke v. Official

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Liquidator19; Monark Enterprises v. Kishan Tulpule & Ors.20; & Bank of


Maharashtra v. Official Liquidator, Navjivan Trading Finance Pvt. Ltd.21.
He submitted that the word disposition in Section 536(2) must
necessarily refer to a voluntary disposition by the Company and that any
disposition of the Companys assets was not within the mischief

15
16
17
18
19
20
21

Unreported Judgment dated 5.9.2012 in OL Report No. 145 of 2011


2013 (2) Mh.L.J. 777 (para 17)
(2000) 2 SCC 756 (para 18)
ILR 2014 Kant. 779 (para 63)
2014 (4) All MR 308 (para 10)
(1992) 74 Com. Cas. 89 (Bom)
(1999) 96 Com. Cas. 234 (Guj)

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On the Mischief Rule of

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intended to be remedied by the Section.

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Interpretation and the meaning that ought to be attributed to the word

disposition, he relied on the Judgments of the Honble Supreme Court


in The Commissioner of Gift Tax, Madras v. N. S. Getty Chettiar22; Empress
Mills, Nagpur v. Municipal Committee, Wardha23; Union of India v.

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Sankalchand Himatlal Seth 24, & Utkal Contractors and Joinery Pvt. Ltd. &
Ors. v. State of Orissa and Ors.25 ; the Judgment of the House of Lords in

Attorney General v. H.R.H. Prince Ernest Augustus of Hanover26 and the


definition of the word disposition in Blacks Law Dictionary (9 th Ed.

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West 2009) and the New Oxford English Dictionary of English


(Clarendon Press 1998);

b)

That a secured creditor is entitled to stand outside the winding up and to

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enforce his security without the leave of the Company court. He relied

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23
24
25
26
27
28

in this behalf on the Judgments in M.K. Ranganathan & Anr. v.


Government of Madras & Ors.27; MSFC v. Official Liquidator, Bombay28;
Iftex Oil & Chemicals Pvt. Ltd. v. Official Liquidator of M/s. Dhake Dyes &

1971(2) SCC 741, 746 (para 18)


AIR 1958 SC 341, 348
AIR 1977 SC 2328, 2341
(1987) 3 SCC 279, 288-290
[1957] 1 All E.R. 49, 53
[1955] SCR 374, 383-87, 390-91
AIR 1993 Bom 392, paras 6-22

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Chemicals Pvt. Ltd.29, and SICOM v. MSFC30. Such a sale would not fall

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foul of Sections 536(2) or 537(1)(b);


c)

That Shashi Gopal as a subrogee was only required to issue a notice, of


his intention to sell the hypothecated securities, to the Official Liquidator
under Section 176 of the Indian Contract Act which was done in the

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present case;
d)

That in the absence of an adjudication by the Official Liquidator of the

claims of the workmen, no pari passu charge in favour of the workmen


could be said to exist which would limit the right of Shashi Gopal as a

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subrogee to stand outside the winding up and to sell the hypothecated


securities. He also contended that some of the persons who had filed
claims before the Official Liquidator performed managerial or

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administrative functions and their dues which are yet to be adjudicated

e)

are not entitled to priority or to a pari passu charge under Section 529-A
of the Companies Act;
That in any event, Sections 536(2) and 537(1)(b) are not an absolute bar
to a sale and protect any sale in the interest of the company. He relied on
the Judgments of the Apex Court and of various High Courts in Pankaj

29 [1999] 101(2) Bom. L.R. 32


30 (1988) 64 Com. Cas. 102 (Bom)

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Mehra v. State of Maharashtra31; BNP Paribas v. United Breweries

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(Holdings) Ltd.32 & Sunita Vasudeo Warke v. Official Liquidator & Ors.33.
The present sale by Shashi Gopal in exercise of his rights as a subrogee is
one such;
f)

That Shashi Gopal, as a subrogee, did not stand in a fiduciary position

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qua the company and was only required to issue a notice to the Official
Liquidator prior to the sale of the hypothecated securities even by private

treaty without issuing a public notice;


g)

That in any event, the Official Liquidator had alleged neither fraud nor an

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undervaluation in the Reports filed by him and that in the absence of


either, the sale could not be held to be improper;

h)

That his client was in any event willing to deposit a sum of Rs.

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30,00,000/- to secure the pari passu share of the workmen (which is


alleged to be Rs. 25,77,000/-) in the sum of Rs. 1.5 crores which had been
received as consideration for the sale of the hypothecated securities by
Shashi Gopal to Magnasound. It was submitted that on the pari passu
claim of the workers in the said sum of Rs. 1.5 crores being fully secured,
the challenge to the sale by Shashi Gopal would no longer survive;

31 (2000) 2 SCC 756 (para 18)


32 2014 (2) AKR 129 (para 63)
33 2014 (4) ALL MR 308

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Mr. Chetan Kapadia, Learned Counsel on behalf of Shashi Gopal, while

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21.

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adopting the arguments of Dr. Tulzapurkar, also contended, by way of written


submissions, that the condition of the master tapes and the cassette/CD photo

covers which were originally handed over to the Official Liquidator in good
condition, were received by the subrogee in a poor condition. He further

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contended that the subrogee was therefore obliged to spend considerable time
and money to restore the master tapes and photo cards to render them usable.

He further contended that in any event, even if the hypothecated securities


were capable of fetching more than Rs. 1.5 crores and had been sold by UBI

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under the consent decree in its favour, such overflow would have enured to the
benefit only of UBI and not the workmen.

Mr. Amit Jamsandekar, Learned Counsel for Sony Music, submitted that

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22.

his client had bonafide acquired rights from MMPL. He further urged that

after acquisition of the rights, Sony Music had invested tremendous amount
of money, skills, labour and resources to commercially exploit the copyright
acquired by them. On this basis, he contends that it would be inequitable to set
aside the Agreements executed by MMPL in their favour.

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Arguments in the above matter were concluded on 30 th April, 2015.

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23.

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Thereafter Advocates for the parties except Sony Music Entertainment India

filed their written submissions on 13th May, 2015 i.e. during court vacations.
Sony Music Entertainment India filed its written submissions on 11 th June,
2015. I have considered the oral as well as written submissions made/filed by

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the parties and the Judgments relied upon by them. The first issue that arises
for consideration is as to whether Shashi Gopal, in his capacity as a subrogee,

was entitled to sell any of the hypothecated securities without the leave of the
Company Court. The contention advanced on behalf of the Official Liquidator

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that a recovery certificate issued by the Debt Recovery Tribunal or the benefit
of a Consent Decree passed by it is incapable of assignment to a non banking
entity reflects the true legal position. A non banking entity is not entitled

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under the provisions of the Recovery of Debts Act to file an Original


Application in the Debt Recovery Tribunal for recovery of any amounts due to

it. It follows that it would not be entitled to seek enforcement of a Recovery


Certificate issued by the Debt Recovery Tribunal in favour of a bank or
financial institution on the purported basis that the same has been assigned to
it. Such an assignment appears to be legally impermissible.

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In any event, in the present case, on a fair reading of the Deed of

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Subrogation dated 25.06.09, UBI does not appear to have assigned its debt,
decretal or otherwise, to Mr. Shashi Gopal but has merely transferred in his
favour the benefit of the securities held on account of his being a subrogee.
This is a benefit to which Mr. Shashi Gopal would have been even otherwise

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entitled by operation of law on payment being made by him in his capacity as a


guarantor of amounts due from the principal debtor to the secured creditor.

That being so, Mr. Shashi Gopal can rely if at all only on the terms of the
Deeds of Hypothecation that had been executed by the Company in

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Liquidation in favour of UBI. The Deeds of Hypothecation in the present case


do contain a power of sale. However, the Company being in Liqn, the power of
sale is qualified by the pari passu charge of the Workmen under Section 529-A

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of the Companies Act, 1956. The principle laid down by the Honble Supreme
Court in MK Ranganathan v. Govt. of Madras (supra) that a secured creditor is

entitled to stand outside the winding up and enforce his security by sale
without reference to the OL or the Company Court pre-dated the introduction
of Section 529A which places workers on par with secured creditors and is no
longer good law. This position has been recognized in the judgment of the
Honble Supreme Court in International Coach Builders (supra) and several

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judgments that follow it. As would be evident from the paragraphs reproduced

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hereinbelow, the Honble Supreme Court in International Coach Builders

(supra) has in no uncertain terms recognized that after introduction of Section


529A, a secured creditor would be entitled to enforce its security by sale only
with the consent of the OL and under the directions of the Company Court:
It is contended on behalf of the SFCs that they are secured

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14.

creditors and as such entitled to exercise their rights under the mortgage
as also the statutory rights conferred on them by Section 29 of SFC Act

without interference of courts. Hence,it is urged that the SFCs can sell
the mortgaged and charged properties without reference to any court,

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much less the Company Court. Reliance is placed on the judgement of


this Court in M.K. Ranganathan and Anr. v. Government of Madras
and Ors.MANU/SC/0007/1955: [1955]2SCR374. That was a case
arising under Section 232 of the Companies Act, 1913. This Court was

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required to consider the meaning of the provision any sale held without
leave of the Court of any of the properties used in Section 232(1) of the
Companies Act, 1913 which rendered such sales void. It was held that

these words refer only to sales held through the intervention of the court
and not to sales effected by the secured creditor outside the winding up
without intervention of the Court. This Court pointed out that the law
in England, and the provisions of the Companies Act in India, was the
name, namely, that the secured creditor had the right of realizing his
security by standing outside the winding up, in which case he was not

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required to seek intervention of the Court.

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15. The decision in Ranganathan (supra) held the field for considerable

period, both under the Companies Act, 1913 and the Companies Act,
1956. However, by amending Act 35 of 1985, amendments were carried

out in Section 529 and a new Section 529A was enacted. These
developments, in our view, brought about a qualitative change in the

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legal situation. It is important to notice that M.K. Ranganathan (supra)


was decided under the Companies Act, 1913 which did not have any
provision corresponding to the proviso to Section 529 or Section 529A of

the Companies Act, 1956. Obviously, therefore, Ranganathan could not


have considered the impact of these amendments on the provisions of
Section 232 of the Companies Act, 1913 (corresponding to Section 537 of

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the Companies Act, 1956) was enacted. These developments, in our view,
brought about a qualitative change in the legal situation. It is important
to notice that M.K. Ranganathan (supra) was decided under the

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Companies Act, 1913 which did not have any provision corresponding to
the proviso to Section 529 or Section 529A of the Companies Act, 1956.
Obviously, therefore, Ranganathan could not have considered the impact

of these amendments on the provisions of Section 232 of the Companies


Act, 1913 (corresponding to Section 537 of the Companies Act, 1956).
16. The Division Bench of the Bombay High Court has considered in
detail the change in the legal situation brought about by these new legal
provisions in Maharashtra State Financial Corporation v. Ballarpur
Industries Limited MANU/MH/0061/1993 : AIR1993Bom392.

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27

17. As a result of the proviso added in Section 529, the security of every

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secured creditor is deemed to be subject to a 'pari passu' charge in favour


of the workmen to the extent of the workmen's dues (called 'workmen's

portion, as defined in Sub-section (3)(c) therein. It is further provided


that, where the secured creditor, instead of relinquishing its mortgage

and proving his debt, opts to stand outside the winding up proceedings

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and realise his security, the Official Liquidator shall be entitled to


represent the workmen and enforce such charge and that any amount
realised by enforcement of such charge shall be applied ratably by the

Official Liquidator for the discharge of workmen's dues. It is true that


even the amended proviso does not give the Liquidator an independent
right of enforcing the charge by selling the security against which such

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charge is created. Nonetheless, it creates a 'pari passu' charge in favour of


the workmen to the extent of their dues and makes the Liquidator the
representative of the workmen to enforce such a charge. By reason of

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Clause (c) of the newly added proviso, so much of the debt due to the
secured creditor opting to realise security as could not be realized because
of the special created rights in favour of the workmen, or the amount of

the workmen's portion in the security, whichever is less, shall rank pari
passu with the workmen's dues under Section 529A. Section 529A
provides for overriding preferential payments of workmen's dues and
unrealised portion of the secured creditors dues, as provided in Clause (c)
of the proviso to Section 529.
19.

The decision of the Bombay High Court in Maharashtra State

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Financial Corporation case (supra) gives weighty reasons as to why when


the company is under winding up the SFC to which the assets of the

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company are charged cannot proceed to realise the security without


intervention of the Company Court. We have already noticed that as a

result of the amendment to Section 529 a pari passu charge to the extent
of the workmen's portion is created on the security of every secured

creditor when he opts to realize a security by standing outside winding

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up. 'Pari Passu' means "with equal steps, equally, without preference"
(Jowitt's Dictionary, Vol.II, 1959 Edition 1294). Black's Law
Dictionary, 6th Edition, 115 defines it as "By an equal progress... Used

especially of creditors who, in marshalling assets, are entitled to receive


out of the same fund without any precedence over each other." It is also
defined as "With equal steps, that is to say, proceeding side by side at the

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same place" (Prem's Judicial Dictionary, Volume III, 1964 Edition,


page 1217)
20.

The rights of the pari passu charge holders would run equally,

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temporally and
22.

potently, with the rights of the secured creditors.

Since the Official Liquidator is in the position of a co-mortgage,

the SFCs cannot act independently or by ignoring him for enforcing the
security. It is established law that in case of co-mortgages, all of them
should join in the suit for enforcing the security, but if some of them
refuse to join, they have to be included as defendants, not merely as
performa parties, but as necessary parties inasmuch as the mortgage
right vests in them along with the plaintiffs-mortgagees. (See in this
connection the judgment of the Privy Council in Sunitibala

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Debi v.Dharae Sundari Debi AIR 1919 PC 24. The same principle
would be substantially true and applicable in the case of a mortgagee and

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a pari passu charge-holder over the same security for realising the
security. The realization of the security can only be done by both the

charge-holders joining and realising the security simultaneously. If a sale

takes place, it can only be simultaneously for recovery of the claim of


all pari passu charge-holders and sale proceeds are required to be divided
23.

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proportionately in the same proportion as their dues.


In support of their respective contentions, parties have referred to

and relied upon judgments of different High Courts. The view taken by

the Bombay High Court commends itself to us. The Division Bench of
the said High Court pointed out that, like a secured creditor, the official
liquidator as a pari passu charge holder cannot independently bring the

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security to sale ignoring the secured creditor. He must, therefore, either


obtain concurrence of the secured creditor for sale and take the Court's
sanction, or he can apply for sanction of the Court after notice to the

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secured creditor. In either event, the Court while granting sanction may
impose appropriate condition and give directions regarding the conduct of
the sale, the fixing of the reserve bid, acceptance of the bid, confirmation

of sale and distribution of sale proceeds.


24.

We cannot be unmindful of the fact that every creditor is interested

in realizing the security only for his benefit and to the extent necessary
for recovery of his outstanding. Prior to 1985 it might have been possible
for a secured creditor under Section 529 of the Companies Act, 1956, or
its predecessor, Section 232 of the Companies Act, 1913 as interpreted by

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this Court in M.K. Ranganathan case (supra), to opt to stand outside the
winding up and realise the security by bringing it to sale. This was

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possible because the secured creditor had unrestricted right of standing


outside the winding up and proceeding against the property mortgaged to
him.
25.

Of course, even in such a situation, if the same property was

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mortgaged to more than one secured creditor, they had to either come to
an agreement, or in the event of disagreement, there had to be a suit in
which the dissenting mortgagee had to be sued as a necessary party

defendant. No doubt Section 29 of the SFC Act was intended to place the
SFCs on a better footing. But, in our view, this better footing is available
only so long as the debtor is not a company or is a going company. The

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moment a winding up order is made in respect of a debtor company, the


provisions of Section 529 and 529a come into play and whatever superior
rights had been ensured to SFCs under the provision of the SFC Act are

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now subjected to and operate only in conjunction with the special rights
given to the workmen, who as pari passu charge-holders are represented
by the official liquidator. We are, therefore, of the view that the

unhindered right hitherto available to the SFCs to realise their security,


without recourse to the Court, no longer holds true as the right vested in
the official liquidator is a statutory impediment to such exercise and has
to be reckoned with. And since the official liquidator can do nothing
without the leave or concurrence of the Court, all necessary applications
must, therefore, come to the Company Court.
32.

We, therefore, hold as under:

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1. The right unilaterally exercisable under Section 29 of the SFC Act is


available against a debtor, if a company, only so long as there is no order

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of winding up;

2. The SFCs cannot unilaterally act to realise the mortgaged properties


without the consent of the official liquidator representing workmen for

the pari passu charge in their favour under the proviso to Section 529 of
the Companies Act, 1956.

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3. If the official liquidator does not consent, the SFCs have to move the
Company court for appropriate directions to the official liquidator who is
the pari passu charge holder on behalf of the workmen. In any event, the

official liquidator cannot act without seeking directions from the


Company Court and under its supervision.
Thus, after the introduction of Section 529-A which gave workers a pari

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25.

passu charge along with secured creditors in mortgaged or hypothecated

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securities in a winding up, it is no longer open for a secured creditor to contend


that it is entitled to enforce its securities without reference to or the leave of the

Company Court.

26.

It was then contended on behalf of MMPL that the Official Liquidator

having failed to adjudicate the claims of the workmen, no pari passu charge in
their favour could be said to exist which would limit the right of the subrogee to
deal with the hypothecated securities. This argument is clearly misconceived.

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The mere fact that the Official Liquidator has not yet adjudicated the claims of

creditor free to deal with a security as he chooses.

27.

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workmen would not disentitle them to a pari passu charge or leave a secured

In the present case, there is some controversy as to whether some of the

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employees of the company who have filed claims with the Official Liquidator
are workmen entitled to priority under Section 529-A of the Companies Act.

The Official Liquidator has furnished a list of persons who have filed claims as
workmen. Their claims aggregate to Rs. 1,09,86,378.95/-. It has been argued

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on behalf of MMPL that almost 50% of these Claimants were employed in a


managerial or administrative capacity and therefore are not workmen entitled to
priority under Section 529-A. They have also contended that almost 20% of

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the claims are unsupported by any documentary evidence. These are issues to
be determined by the Official Liquidator in the course of adjudication of the

claims. However, there does not appear to be the slightest doubt that atleast
some of the claims made before the Official Liquidator are by workmen of the
Company in Liquidation and that these claims are outstanding. That being so,
the ratio of the Judgment in International Coach Builders (supra) squarely
applies and the subrogee was obliged to seek directions from this Court with

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regard to the sale of the hypothecated securities.

28.

It was then contended on behalf of Magnasound that the OL not having

objected to the recital in the Deed of Subrogation that no workers claims had
been received, Shashi Gopal was then free to deal with the hypothecated assets

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as he chose. This contention is misconceived. The secured creditor cannot


arrogate to himself the right to decide whether there are any workers claims. If

workers claims have been received and have not been adjudicated, he must
perforce apply to the Company Court seeking directions for sale. The fact that

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the OL has not objected to the subrogation in favour of Shashi Gopal does not
constitute an admission of everything in the Deed of Subrogation particularly
an incorrect recital that no workers claims have been received. The OL has no

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obligation to object to such a recital and the absence of such an objection


cannot, in any event, constitute a rejection of the workers claims which have in

fact been made. That being so, the Subrogee was not entitled to sell the
hypothecated assets by private treaty without reference to the Company Court.
29.

The fact that the Official Liquidator did not reply to the letter dated

9.5.2011 by which Shashi Gopal purported to inform the OL that he intended to


exercise a power of sale in respect of the hypothecated securities is also of no

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consequence. The Official Liquidator has adverted to the circumstances in

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which his Office failed to reply to the said letter. Even otherwise, a secured
creditor is not entitled to rely on the silence of the Official Liquidator to
exercise a unilateral right of sale without reference to the Company Court. The

Official Liquidator is merely an officer of the Court and acts under its

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directions. If the letter dated 9.5.2011 had come to his notice at the time of its
receipt, he would have had little choice but to place the matter before the

Company Court by means of a report for further directions. On such a report


being placed, this Court would have had the opportunity to consider the

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question and to issue appropriate directions to safeguard the interests of the


workers and other creditors of the Company. In the absence of any response
from the Official Liquidator, Shashi Gopal as the subrogee was duty bound to

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move this Court for appropriate directions in the matter of sale of the
hypothecated securities. He certainly was not entitled to assume that he was

free to deal with the securities in any manner that he pleased.

30.

The argument urged on behalf of MMPL that Shashi Gopal as a subrogee

was merely required to issue notice under Section 176 of the Contract Act to the
Official Liquidator, prior to a sale in any manner of his choosing, is entirely

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devoid of merit. At the very outset, it is doubtful whether Section 176 of the

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Contract Act which governs the rights of a pledgee would have any application
to the facts of the present case where the securities were hypothecated, not

pledged. Even otherwise, the argument is misconceived for more reasons than
one. The OL is not the owner of the hypothecated securities. He is merely a

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custodian of it as an officer of the Court. Further, it is clear from the law laid
down in International Coach Builders (supra) that once a company is in winding

up and the workers have a pari passu charge on the secured assets, no secured
creditor would be entitled to exercise a unilateral right of sale without reference

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to the Company Court by merely issuing a notice of such proposed action to the
OL.

Even otherwise, the manner in which the hypothecated assets were sold

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31.

by Mr. Shashi Gopal leaves much to be desired. It was argued by Shashi Gopal

and MMPL that a subrogee does not stand in a fiduciary position towards the
principal debtor. This proposition is over broad. It appears to me clear from
the Judgments of the Honble Apex Court in Lallan Prasad (supra) and Jaya
Singh Dnyanu Mhoprekar (supra) that a pledgee or hypothecate would stand in a
fiduciary position qua the principal debtor to the limited extent that he has a

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duty to secure the best possible price while enforcing a security. It is on this

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account that the Apex Court in Gajraj Jain (supra) and FCS Software Solutions
(supra) mandates that a secured creditor exercising a unilateral power of sale
shall adopt every reasonable precaution including obtaining a valuation of the
asset proposed to be sold and inviting offers by public notice. Further, any sale

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by a secured creditor would be open to scrutiny to determine whether the


transaction is at arms length or with a related party. In a transaction of this

nature, every suspicion of a secret profit must be dispelled. In the present case,
it is an admitted position that there has been no valuation prior to sale nor were

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offers invited from the public. The sale was effected, without the leave of the
Company Court, by private treaty in favour of a company which appears to
belong to the same group as the Company in Liquidation. Mr. P.M. Sudheer, a

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director of MMPL who has sworn affidavits on its behalf, appears to have been
employed as the Manager (Accounts) of the Company in Liquidation. He has

in fact made a claim before the OL in that capacity for his outstanding dues.
Given these facts, even if no leave were required to be obtained by the subrogee
prior to the sale of the hypothecated securities, the sale in the present case was
infirm and open to challenge by the OL.

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The question then arises as to whether the sale is liable to be set aside

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under Section 536(2) or 537(1)(b) of the Companies Act. It has been contended
on behalf of Mr. Shashi Gopal and MMPL that any sale of the assets of a

Company in Liquidation by a third party would not fall within the ambit of
Section 536(2) and that the section would apply only to cases of sale of its assets

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by the company itself after the commencement of winding up. However, none
of the judgments cited in this behalf by the Subrogee involve cases where a third

party sought to sell the assets of the company and the question arose as to
whether such a sale would fall foul of Section 536(2). Any observations in these

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judgments have to be viewed in that context. The plain language of the Section
would in fact indicate that even sales sought to be effected by third parties of
the assets of a Company in Liquidation would fall within the prohibitive ambit

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of that section. A sale by a third party would certainly be within the mischief
sought to be remedied by the Section, namely, the prevention of any

interference with the assets of a company in liquidation, their sale in a manner


to ensure the best possible price and the orderly distribution of the sale
proceeds. The Judgments cited on behalf of the subrogee in respect of what is
commonly referred to as the mischief rule in the interpretation of statutes
would appear to support the construction of Section 536(2) canvassed on behalf

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of the Official Liquidator.

33.

Even otherwise, this issue appears to me of limited relevance insofar as a

sale by a third party would in any event fall within the ambit of Section 537(1)
(b). The fact that the report of the OL has not made a reference to Section

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537(1)(b) would by itself be of no consequence. If a secured creditor is required


to obtain the leave of the Company Court to enforce a security by sale as held in

International Coach Builders (supra) then it would necessarily follow that a sale
effected without leave would be void under Sections 536(2) and/or 537(1) (b).

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In the present case, the Subrogee has made no application seeking the leave of
this Court, even ex post facto, for the sale of the said asset. The sale would

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therefore be liable to be set aside.

34.

In any event, the burden clearly lies on the person seeking to maintain a

sale (which is not in the ordinary course of business) under Sections 536(2) and
537 (1) (b) to prove that the sale was for the benefit of the Company. This Court
has so held on several occasions including in its Judgments in Hindustan
Transmissions Ltd. (supra) and Sunita Vasudeo Warke (supra). In the present
case, neither Shashi Gopal nor MMPL have made any attempt to discharge that

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burden. In view of the burden being cast upon the person seeking leave to

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validate a transaction that is otherwise void, the contention advanced on behalf

of Mr. Shashi Gopal that the OL has not alleged undervaluation in the sale is
entirely misconceived. The burden does not lie upon the OL to do so. In any
event, it is self evident that the assets have been undervalued. The agreements

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between MMPL and Sony Music belatedly disclosed in the course of the
hearing would themselves show that the assets were undervalued. While the

sale by Shashi Gopal in favour of MMPL of the entire repertoire was for a sum
of Rs. 1.5 crores, the agreements executed by MMPL in favour of Sony Music

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for part of the repertoire for a limited period is for a sum of Rs. 1.75 crores
without even taking into account any revenue overflow in which MMPL was

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entitled to share.

35.

It has been urged on behalf of Shashi Gopal in his Written Submissions

(though not on affidavit) that the Master tapes were handed over to the OL in
good condition when he took over the assets of the Company in Liquidation
while their condition was very poor when they were handed over to Shashi
Gopal pursuant to directions of the DRT. He further claims that he was
constrained to devote considerable time and money to repairing/reconstructing

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Similarly, Sony Media has claimed to have expended

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the Master tapes.

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considerable resources on rendering the Master tapes usable. Apart from the

fact that the claims made by the two parties are somewhat at odds, no material
or particulars in support of these allegations including the amounts alleged to

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have been expended have been furnished by either party.

36.

Shashi Gopal has also contended, in support of his submission that the

sale ought not to be set aside, that if the hypothecated securities had been sold
by the DRT under the Consent Decree in favour of UBI, any overflow would

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have been appropriated by the bank and would not have enured to the benefit of
the workers. This argument loses sight of the fact that the hypothecated
securities were in fact not sold under the Consent Decree, but by the subrogee

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arrogating to himself illegally a unilateral power of sale.

37.

In the course of the hearing, an offer was made by MMPL to secure an

amount of Rs. 30,00,000/- by way of workers claims pending adjudication


thereof by the Official Liquidator. This was on the basis that the total of the
workmens claims was Rs. 1,09,86,378.95/-. If the claim were to be allowed in
its entirety (which MMPL contends for various reasons is unlikely) it is claimed

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insofar as the total dues of Shashi Gopal as a secured

creditor/subrogee is Rs. 5,29,54,857.99/-.

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25,77,000/-

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that the pari passu charge of the workmen would be to the extent of Rs.

It was contended that on such

security being offered, the challenge to the sale must necessarily fail. The offer,
however, proceeds on the premise that Rs. 1.5 crores is a fair price for the
As I have already noted, Shashi Gopal and

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hypothecated securities.

Magnasound have failed to discharge their burden of demonstrating that the

consideration of Rs. 1.5 crores was in fact a fair value for the hypothecated
securities. In the present case, there is some controversy as to the amount that

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Shashi Gopal would be entitled to recover from the Company in liquidation in


his capacity as a subrogee. He would no doubt be entitled to recover such
amounts as he has himself paid to UBI. These will require verification by the

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OL. These amounts having been paid after the commencement of winding up,
he would not be entitled to any interest thereon unless there were a surplus

after all creditors of the company were paid off.

Apart from these

considerations which make the offer unacceptable, it is also curious that the
offer proceeds from MMPL rather than the subrogee. If anything, this itself is a
tacit admission that the amount of Rs. 1.5 crores that was paid by MMPL for
the hypothecated securities was an undervaluation.

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That apart, the duty of the Official Liquidator and the Company Court is

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38.

to ensure that the interest of all stakeholders including the workers and
creditors, both secured and unsecured, are protected.

Further, the Deed of

Subrogation would appear to indicate that apart from the hypothecated

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securities, there are other securities as well including a bungalow at Lonavala


which have been handed over to Shashi Gopal in his capacity as a subrogee. It

is entirely conceivable that the amount to which the subrogee is entitled would
not exceed the value of all of these securities. It is therefore imperative that

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each security fetch the best possible price. The manner in which the repertoire
of the company in liquidation has been sold by the subrogee was however not

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designed to secure this outcome.

39.

The circumstances of the present case leave little doubt that the sale

itself, without the leave of the court and given the manner in which it was
effected, was unlawful. However, this leaves open the question as to what order
would meet the ends of justice in the present case. The Official Liquidator not
having in his possession the masters or the agreements or indeed any
documents in respect of the repertoire which constitutes the hypothecated

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security, a valuation exercise to determine what ought to have been the fair

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value of the hypothecated security at the time of its sale by Shashi Gopal

appears impracticable. However, MMPL ought not to be permitted to profit


from a sale that is clearly void. To the extent that the transaction between
MMPL and Sony Music is at arms length, the two being unrelated, the

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consideration fixed in the Agreements between MMPL and Sony Music can be
taken to represent the true market value of the rights transacted. The sale of

the hypothecated securities by Shashi Gopal to MMPL being void, the


consideration paid/payable by Sony Music ought to enure to the benefit of the

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Company in Liquidation and its various stakeholders including workers and


creditors. In these circumstances, I pass the following Order which in my view
would meet the ends of justice:
The Deed of Assignment dated 14.03.2012 between Shashi Gopal and

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a)

b)

MMPL in respect of the hypothecated securities is set aside as illegal


and void.
MMPL shall on or before 2 nd December,2015, deposit a sum of Rs. 25
lakhs with the Official Liquidator, being the difference between the
amount already received by MMPL from Sony Music (Rs. 1.75 crores)
and the amount paid by MMPL to Shashi Gopal (Rs. 1.5 crores).

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The Official Liquidator shall complete the adjudication of the claims of

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c)

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the workmen of the Company in Liquidation within a period of

sixteen weeks from today. In doing so, the Official Liquidator shall
also consider whether the claims are in fact by persons who are
entitled to priority as workmen under Section 529-A of the

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Companies Act. He shall also verify the amounts paid by Shashi


Gopal to UBI to which he is entitled to credit as a subrogee.
On such adjudication and verification, the Official Liquidator shall

d)

place a report before this Court for a distribution pari passu of the

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amount so far generated from the hypothecated securities, i.e., Rs.


1.75 crores, between the workers and Shashi Gopal as subrogee. In
that report, this Court shall consider the amount, if any, that Shashi

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Gopal would be liable to bring in to meet the amounts due to the

e)

workmen in such a distribution.


Sony Music shall render accounts to the Official Liquidator of the
revenue generated by it from the exploitation of the rights which are
the subject matter of the Agreements in its favour. Any overflow
which was payable to MMPL under the terms of the said Agreements
shall be distributed pari passu among Shashi Gopal as a subrogee and

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the workmen of the Company in liquidation.


On expiry of the tenure of the Agreements in favour of Sony Music;

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f)

MMPL, Shashi Gopal and Sony Music shall hand over forthwith to
the Official Liquidator all material and documents in respect of the
repertoire which constitutes the hypothecated securities including but

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not limited to Masters, Link Agreements and publicity material. The


Official Liquidator shall thereafter take steps under the directions and

supervision of this Court to sell and/or license the rights which


constitute the hypothecated securities. Any revenue generated by

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such sale/exploitation shall be distributed pari passu among Shashi


Gopal and the workers of the company in liquidation. Any overflow
shall be distributed in accordance with the Companies Act and the

The OL Reports are accordingly disposed of with costs.

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Company Court Rules.

(S.J. KATHAWALLA, J.)

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